The Hindu Business Line : After rupee impact, high cotton rates throttling mills

Coimbatore, Nov. 23 Even as the fortunes of cotton textile industry are left in tatters by the unrelenting rupee, the competing purchases of India’s raw cotton by international shippers in the last one month are giving domestic textile enterprises agonising moments in their raw material planning.

In the light of import cover of most popular cotton varieties from Gujarat and Maharashtra by global merchants, domestic cotton prices, especially the coarser and medium staple fibres, continued to rule high, contrary to the industry’s earlier perception that the bumper crop would mean lower prices this year.

A price comparison of popular Indian crops between October 2006 and October 2007 showed that the current market rates of these varieties are being quoted 15% to 20% higher compared to the 2006 prices, according to captains of textile industry who attribute the rising price behaviour to heavy export indents made by the trade.

Bulk of the raw cotton sourcing from the country is directed at China, Bangladesh and Pakistan.

Among the varieties that have registered double-digit rise percentage are Punjab’s J-34 which had increased from Rs 1,745 per maund (a maund is equivalent to 37.3 kgs) to Rs 2,030, Shankar-6 from Rs 18,500 to Rs 20,300 per candy , Mech-1 (Madhya Pradesh) from Rs 17,800 to Rs 19,500 and MCU-5 (Andhra crop) from Rs 19,800 to Rs 21,500.

A high raw material cost and eroding prices for cotton yarn produced by mills are two factors the textile industry would not have bargained for at this juncture when its fortunes have taken a beating due to rising rupee and international competition for its products across the board.

‘A sliding yarn market has made matters worse for the spinners. Yarn prices in export market is currently ruling 7% to 8% below the domestic yarn prices, thereby forcing many to turn to domestic market sale and causing market glut’, said Dr K.V. Srinivasan, Chairman, Southern India Mills Association (SIMA).

The textile industry is ill at ease over the stalemate being faced by it as the 14% cost disadvantage hoisted on textile exporters on account of the rupee appreciation in the last seven months has rendered the industry’s working increasingly unviable. It is not only the rupee-dollar exchange problem, but also in dollar terms India’s yarn prices dropped by some five per cent or so in the face of stiff competition, the industry sources maintain.

How worse is their working? “Mills generally faced stock accumulation in 2006 compared to the previous year. But this year, their stock levels are at least 70% more than the 2006”, said Mr J Thulasidharan, SIMA’s Deputy Chairman and Managing Director of Coimbatore-based Rajarathna Mills, who felt that besides the downward swing in exports caused by the rising rupee, al-round capacity build-up that had occurred in the industry too had its share of burden on the marketability of the industry.

The textile body is seeking government action to reduce the import duty on cotton from the present 10% to 5%.

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