Agri Business

Spinning mills begin signing deals to import cotton

Subramani Ra Mancombu | | Updated on: Apr 26, 2022

Attrition rate in spinning sector is at 30-40 per cent

Shipments likely to arrive in June, deals stuck around ₹1 lakh a candy

Spinning mills, mainly in South India, have begun to sign deals to import cotton following the Centre’s decision to allow the natural fibre’s shipments into the country duty-free until September 30.

“Mills in Tamil Nadu have started placing orders for imported cotton. As a strategy, mills placed orders for 30-40 days of production with the aim of rebalancing  with domestic cotton,” said Prabhu Dhamodharan, Convenor of Coimbatore-based Indian Texpreneurs Federation (ITF).

Signing spree

“Deals to import at least 100 bales (170 kg each)  are being signed every day by spinners in South India since imports were made duty-free on April 13. These imports will begin to take place in two months,” said Anand Poppat, a Rajkot-based trader in raw cotton, yarn and cotton waste. 

However, the total quantity signed so far are yet to be fully computed.

The Centre allowed duty-free import of cotton for a limited period as domestic prices had topped ₹90,000 a candy (356 kg). Also as spinning mills were unable to get quality cotton, they had slowed down production in an effort to extend their inventories. 

The textile industry had urged the Centre to allow import of cotton duty-free so that they could bring in at least 40 lakh bales to tide over the shortage. While the availability of quality cotton was an issue, mills also feared that the natural fibre’s production could be lower than the revised estimates of the Committee on Cotton Production and Consumption (CCPC) — a body of all cotton textile industry stakeholders.

Landed price of imports 

At its meeting last month, the CCPC had lowered India’s cotton production to 340.62 lakh bales for the current season to September against 352.48 lakh bales the previous season, a three-year low. It also pegged the closing stocks at a three-year-low of 45.46 lakh bales. 

Poppat said deals to import cotton are being signed between ₹95,000 and ₹1,03,000 a candy. “This will be the price at which cotton will land at Indian ports,” he said.

Prices of Shankar-6 cotton, the benchmark for exports, are currently quoting at ₹93,200-93,800 a candy. On the Intercontinental Exchange, New York, benchmark cotton futures are currently ruling at 142.30 US cents a pound (₹88,425 a candy).

Ronak Chiripal, Promoter, Chiripal Group, said the Centre’s decision had to some extent reined in domestic prices. “We can say that to some extent but cotton inventory is a big challenge right now. We are allowed to import but the stocks have depleted and nobody has much to offer,” he said, adding the Centre should waive import duty permanently.  

Advantage of imported cotton

Dhamodharan said: “One of the biggest advantage now with imported cotton is, mills will get better realisation to the tune of 4-5 per cent due to historic low level of quality in current domestic cotton.”

A huge problem with Indian cotton is its contamination. This year, according to spinners, it had resulted in realisation for mills drop to 68.5 per cent. On the other hand, realisation from imported cotton could be 75 per cent.

“Since imported cotton will be of good quality and free from contamination, spinning mills will get premium for their yarn,” said Poppat.

The Rajkot-based trader said imports are likely from Brazil, the US and Africa. “We may even get cotton from Australia,” he said.

Chiripal said Indian spinners continued to rely on local ginners for cotton against the bookings they have made in the past 3-4 months. 

Export prospects bleak

Poppat said scope for export of Indian cotton is less now since Chinese domestic cotton prices have dropped. So far, 37.50 lakh bales of cotton have been exported between October 1 and April 23. This season, cotton shipments from the country are estimated by CCPC to drop to 40 lakh bales from 77.59 lakh bales last season. 

Chiripal said the past two years were great in terms of demand from customers worldwide for the textile industry. “But right now we are seeing some reduction in sales. Customers are re-looking at their forecasts for the remaining year. Shipping (container prices) is still a big issue and some of China’s major cities going under lockdown will only worsen the situation of container availability,” he said.

Poppat said the textile industry faced a drop in retail demand even as interest rates are going up. “The uptrend in cotton prices globally has been stopped for now,” he said. 

Published on April 26, 2022
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