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Spinning mills in Andhra Pradesh, like their counterparts elsewhere in the country, are likely to continue with their production cuts till the new crop season begins in October, as inventories are still partially filled and cotton yarn prices further slides.
The 150-odd mills in the State had whittled down production by 30 per cent as part of a nation-wide initiative in the last week of May in an effort to stabilise market and bring down inventory levels.
Although inventory levels have substantially been pared down since then, stocks are still piling up at the mills. “Today most mills in the State are kept idle for four to five hours a day, translating into a production cut of about 20 per cent. Mills in Tamil Nadu are following steeper cuts. As things stand today, we may have to continue with the production cuts,” Mr R.K. Agarwal, Vice-Chairman of Andhra Pradesh Spinning Mills Association, told Business Line .
Inventories in the Andhra Pradesh mills, which were saddled with unsold stocks of over 75 million kgs of cotton yarn in the last week of May, are today carrying an estimated 50 mkg. Mills across the country, which had stocks of about 500 mkg, have today brought down the inventory levels to 300 mkg. This works out to almost one month of stocks, with the country's annual cotton yarn production being 3,800 mkg.
Although export restrictions had been partially lifted, poor export markets, coupled with falling cotton prices, is seen as a major reason for inventory build-up. “We are hardly today getting any export enquiries, chiefly because of the recessionary fears in the US. Latin American market is our major export market,” Mr Agarwal said.
He estimates the total financial loss for the spinning mills sector in the State at Rs 2,000 crore since beginning of the glut situation. At the all-India level, losses have been pegged at about Rs 11,000 crore.
At the beginning of the season, there was unrestricted raw cotton export, which pushed up prices to an all-time high of Rs 64,000/candy earlier this year, subsequently falling to about Rs 45,000 in the beginning of May.
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