Spinning mills in some parts of the country, particularly the south, have slowed yarn production as cotton prices have soared to new highs of late and they do not want to buy at such high levels.

Benchmark cotton futures have increased to an 11-½ year high of 130 US cents a pound (₹78,625 a candy of 356 kg) on the Intercontinental Exchange. Cotton prices have increased 15 per cent year-to-date and 66 per cent year-on-year. 

Global prices have gained on fears of low supplies due to drought in growing areas in US. Besides, renewed demand, mainly from China, after the curbs for the Covid-19 was lifted has also contributed to the rise.  

In the domestic market, processed or lint cotton prices are currently ruling at a record high of around ₹85,000 a candy. 

Saving costs 

“This (slow down) is not an official stand of any association in the textiles sector. But a few mills have slowed down. This will help them to not only slow yarn production but also save on electricity costs,” said an industry source, who did not wish to be identified. 

“The speculative increase in prices creates an uncertainty in the trade. To manage the current crisis, 30-40 per cent of the mills decided to slow down production by way of a one-day weekly holiday, slowing down the (motor) speed, using this time for yearly maintenance work,” said Prabhu Dhamodharan, Convenor, Indian Texpreneurs Federation (ITF).

These measures will re-balance the situation by way of extending the cotton inventory for more days in the mills and reducing the cotton consumption, he said.

On Wednesday, a mail from the chief advisor of a mills association purportedly did rounds on Whatsapp claiming that mills had decided to slow down production “to manage the situation at least for a few weeks”.

Premium for quality

Southern India Mills Association Secretary-General K Selvaraju denied any such decision had been taken by mills and said no such development had been reported by any of the mills in the region. 

An industry leader said if the Whatsapp message on mills decision were true, the industry would turn sick and lead to unemployment of lakhs of people. 

Anand Poppat, a Rajkot-based trade in cotton, yarn and waste, told BusinessLine that he had not heard of any such decision from any spinning mill. “However,  the situation is worrisome for the mills since cotton lint prices are ruling at ₹84,000-86,000 a candy (356 kg),” he said. 

Selvaraju said quality cotton was being quoted at ₹90,000 a candy. 

Lukewarm yarn demand

SVP Global CEO Maj Gen OP Gulia said cotton prices rising every day, but yarn prices have not increased at the same pace as the natural fibre. “Spinners are holding the yarn to get better prices. Also, they are changing the product mix to get suitable margins,” he said.

“Ample cotton is available but in view of the high prices, no spinner wants to have a huge inventory,” he said. 

Poppat said yarn prices have recently been hiked. For example, prices of 30 combed carded hosiery yarn have been raised to ₹355 a kg from ₹330 but the demand has been lukewarm. 

“There is a demand-supply mismatch due to sharp increase in cotton prices,” said Gulia. 

The rise in global prices has led to demand for Indian cotton and this has resulted in a premium for the natural fibre here. This resulted in 77.59 lakh bales of cotton being exported last season (October 2020-September 2021). This season, it is estimated at 45 lakh bales. 

CCPC projections

On Tuesday, the Committee on Cotton Production and Consumption (CCPC) estimated the ending cotton closing stocks at 45.46 lakh bales. But the textiles industry is unhappy with the projections, saying it does not reflect the reality.

“Till now, 33 lakh bales of cotton have been exported. During February-March alone, 10 lakh bales have been exported. They are likely to touch 60 lakh bales since we have another six months to go for the season to end,” said the industry source.

Even on the production and consumption front, the industry is unhappy. “Projections for Telangana production is far higher. Consumption has not been assessed properly,” the source said. 

Major disappointment

However, a major disappointment of the outcome of the CCPC meeting is that it did not heed the industry’s demand for allowing duty-free imports of cotton. 

“The Centre should allow duty-free import of cotton or at least permit the shipments under quantitative restrictions or for a stipulated period,” said SIMA’s Selvaraju. 

Such a decision could bring down cotton prices to a reasonable ₹70,000 a candy, he said. Currently, cotton imports attract 11 per cent customs duty, which was imposed in February last year. 

SP Global’s Gulia said the industry hoped prices would stabilise by March, but the reverse has happened. “I hope the government provides some incentives to make the situation conducive for the textile industry,” he said.

Multiple issues

Spinning mills are facing multiple issues due to “risky” cotton price levels, huge working capital needs to manage current prices and lower yarn realisation due to poor quality of cotton, the SP Global CEO said. 

 According to industry sources, the problem for some of the spinning mills is that they have entered into export deals extending up to March 2023. They could now face pressure.

Poppat said multinational trading firms, who buy cotton from the country and export, have stopped buying over the last couple of days and are quoting ₹87,000-88,000 a candy in forward sales. 

The Rajkot trader said farmers were bringing cotton in a measured manner to take advantage of the high prices with daily arrivals being only 75,000 bales across the country. But industry sources alleged that cotton is being hoarded in the name of farmers. 

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