Cotton yarn market revival spells cheer for spinning sector

That the cotton yarn market is ‘on a revival mode', could cheer the spinning sector of the textile industry, but the garment sector may not be too happy about the rise in yarn price.

With the pick up in festival orders, the cotton yarn market is showing significant improvement. Yarn inventory has reached normal levels or even below normal in many spinning mills indicating an increase in demand for yarn, said Mr S. Dinakaran, Chairman, Southern India Mills Association.

Recalling the yarn inventory scenario following the suspension of yarn export registration for four months between December 1, 2010 and March 31, 2011, the SIMA chief said, “the textile industry faced severe market crunch from the beginning of the current fiscal due to pile up of yarn stock totalling 500 million kg against the normal level of 100 million kg. The spinning sector normally exports 23 per cent of its production ranging from 55 mkg to 70 mkg every month.

Due to suspension in export registration, the mills could not export the yarn, resulting in huge accumulation of stock.”

Closure of dyeing units

This coupled with the closure of dyeing units in Tamil Nadu and the sudden glut in the international and domestic markets due to abnormal increase in cotton prices further complicated the situation.

The spinning mills, for the first time, in its history cut back production by 20-40 per cent from May 24 to bridge the demand and supply position.

Reverting to the upward movement in yarn prices in the Salem and Tirupur markets, the SIMA chief said it has risen by Rs 5/kg this month.

The price of 40s combed warp yarn was up by Rs 5 a kg at Rs 190/kg, 30s combed hosiery yarn moved to Rs 184/kg from Rs 179/ kg and the 40s combed hosiery yarn rose by Rs 7 a kg to Rs 197/kg.

In the Mumbai market, the increase ranged between Rs 10 and Rs 20/kg depending on the count.

On fine and superfine counts, he said mills were incurring loss of Rs 38-40/ kg but the loss has since come down considerably.

Spinning mills, which were hitherto offering cash discount and bulk discount for the purchase of yarn to the Tirupur market, now stopped extension of such facility. “The price is also looking to move northwards, may be by another Rs 5/kg. There is no scope for any reduction in the yarn prices,” he said categorically.

On cotton, he said, “it has risen by Rs 7,000/ a candy to Rs 42,000 very recently.”

Supportive measures

The association, at this juncture perceives that the spinning sector would become profitable only if the Centre comes out with supportive measures such as conversion of eroded working capital into working capital term loan with two years moratorium for repayment of loans and interest.

Mr Dinakaran has also pleaded with the Government to facilitate adequate drawing power to enable the mills to procure adequate quantity of quality cotton at competitive rates during the peak season.

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