Various textile units, from spinning mills to powerlooms to units manufacturing made-ups, in South India, particularly Tamil Nadu, are resorting to production cuts by shutting their units at least once or twice a day in view of cotton prices zooming to ₹1 lakh a candy (of 356 kg).
“During June-July, cotton prices had declined to ₹82,000 a candy but they have now topped ₹1 lakh. Prices have suddenly begun to rise, mainly on speculation. We produce open-ended yarn but we are not even able to realise conversion costs,” said M Jayabalan, President, Recycle Textile Federation (RTF), an organisation of open-end spinning mills.
On Monday, the Federation raised the prices of various yarns by ₹15 a kg in view of the soaring cotton prices.
Lower US crop
“Every spinning mill is concerned over the recent losses they have been incurring due to low demand for yarn, whilst cotton prices have been artificially jacked up. Many mills are forced to continue running their units despite high losses,” said K Venkatachalam, Advisor, Tamil Nadu Spinning Mills Association (TASMA).
Cotton prices, which had calmed down in June-July, surged from the second week of this month mainly on projections of a lower crop in the US. According to the US Department of Agriculture, production in the US is likely to drop by 5 million bales due to drought, mainly in the Texas region which accounts for nearly half of that country’s total production.
Cotton prices surged 14 per cent in the second week of this month to nearly 125 US cents a pound before easing a tad. Currently, cotton on Intercontinental Exchange, New York, for October delivery is quoted at 121.43 cents a pound (₹76,725).
In comparison, Shankar-6 cotton, a benchmark for exports, was quoted at ₹99,000-1,00,000 a candy on Monday. The national average weighted modal price (the rate at which most trades take place) for raw cotton ( kapas) was ₹10,601 a quintal.
“Hardly any cotton is available in India, though speculation on Multi Commodity Exchange (MCX) is pushing up prices further,” said Jayabalan.
On Monday, cotton futures on MCX maturing on August 31 were quoted at ₹50,000 a bale (₹1,04,705 a candy). October contracts ruled at ₹41,370 (₹86,633).
Anand Popat, a Rajkot-based trader in cotton, yarn and cotton waste, said daily arrivals of cotton have dwindled to 3,000-4,000 bales. “If the current situation continues for another week, textile units will have to close or cut production further from September 1. The problem is that labour, most of who have migrated from Bihar, Jharkhand, Odisha, Bengal and Chhattisgarh, will be left jobless,” said Jayabalan.
“Already many mills have stopped working for two days in a week. In addition, many mills have reduced the shifts for the rest of the week,” said TASMA’s Venkatachalam.
“At least 50 per cent of the textile units have cut down production,” said the RTF president.
Venkatachalam said despite their best efforts, spinning mills have not been able to reduce yarn supply in the market. “Other value chains in the sector such as readymade garments and home textiles are also facing problems,” he said.
Popat said one of the main reasons for the situation was that the cotton production estimate had gone wrong. Initially estimated at over 350 lakh bales, the Ministry of Agriculture lowered it in the fourth advance estimate last week to 312.03 lakh bales.
“The Centre should collect correct and timely data on cotton processing and consumption,” he said, adding that concrete action should be taken to increase yield.
The current yarn inventory can meet orders without any problem, an industry official said, on condition of anonymity, adding that probably, spinning mills could totally be halted from Monday.
“This needs to be continued till cotton prices are lowered to comfortable levels,” the official said.
Jayabalan said cotton prices usually comprised 40 per cent of the input costs. But they have now gone beyond 65 per cent. “Also, mills can close but they are unable to shut down because they also produce solar power. Higher inputs costs mean our capital costs also rise,” he said.
Venkatachalam said though mills may face losses by disengaging solar energy units and by way of paying bank charges on wind energy units, they would be negligible considering the current level of losses.
The industry official said zero duty import of cotton, allowed till October 31 this year, should be extended to March 31 next year. “The Centre has not responded despite our repeated pleas,” he said.
Need for long-term policy
Representations to delist cotton from trading, at least temporarily, have gone unheeded, the official said. The only option to bring down prices would be to close down mills, the official added.
The official said mills having export commitments and ample cotton stocks could continue operations. Mills could at least begin to announce a weekly holiday which could result in cutting yarn supply by 7 per cent, he said, adding this would automatically increase demand for the commodity.
Poppat said the Centre should frame a long-term policy on cotton imports and exports.
During the current kharif season, the area under cotton is up 5 per cent but fears are being expressed over the crop’s health in view of heavy rains in some growing regions. However, traders and experts say there is nothing to worry on the crop front.