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Coimbatore, June 22 Soaring domestic cotton prices have hit the textile sector this year with mills struggling to achieve a breakeven, the Southern India Mills Association (SIMA) has said.

The cotton price spiral and short supply in quality cotton have occurred on account of abnormal increase in cotton exports which again, according to SIMA, can be linked to the industry facing one of the lowest ever carry-over cotton buffer this season (2007-08) in the form of an all-time low ‘stock-to-use’ cotton ratio of 18 per cent (the stock left as a percentage to total consumption demand by the end of cotton season) triggering the price spiral.

Analysing the trends of cotton prices vis-À-vis the carry over stock positions for the cotton seasons from 2004-05 up to the current 2007-08 season, the apex textile body said the closing stocks as a percentage to the consumption demand has a bearing on cotton price prevalence.

The stock-to-use cotton ratio, for example, for the season 2004-05 when it had its closing stocks at a comfortable 72 lakh bales, stood a healthy 37 per cent leading as a consequence to a stable domestic cotton prices during that period.

That year the cotton export from India was hardly nine lakh bales.

The SIMA analysed into subsequent cotton seasons and noted the carry over stock of cotton showing a steady decline leading to corresponding erosion in the stock-to-use cotton ratio as well.

Even as the closing stock of cotton began falling to 52 lakh bales in 2005-06 and further to 47.50 lakh bales in 2006-07, the export of cotton from the country started swelling from 47 lakh bales in 2005-06 to 58 lakh bales in 2006-07. The depletion of the closing stocks during this period has happened due to rising cotton exports, the SIMA noted.

This year so far, the closing stock of cotton as projected last month has fallen further down to 43 lakh bales leaving the stock-to-use cotton ratio to the lowest ever 18 per cent. The export of cotton this year has shot up to an all-time high of 85 lakh bales.

The SIMA Chairman, Dr K.V. Srinivasan, quoting the international cotton advisory committee figures, that had projected the average global stock-to-use cotton ratio between 2004-05 and 2007-08 seasons to be hovering in the comfort zone of 54-45, said India’s textile competitors — China and Pakistan — enjoyed a healthy closing stock of cotton with their respective stock-to-use ratio prevailing above 35 per cent.

“Cotton being a seasonal commodity and, hence, purely depends on the monsoon, it is essential the country maintained a comfortable buffer to manage unforeseen conditions and meet domestic industries’ needs. A minimum of 25 per cent stock-to-use cotton ratio is crucial for healthy development of domestic textile industry”, Dr Srinivasan added.

More Stories on : Cotton | Textiles | Industry Associations

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