Mills seek funds to source cotton

At a time when the mills should look at procuring cotton, they seem to be in a fix for want of working capital funds (to source cotton), say industry sources.

Stating that such a situation has pushed them to a tight corner particularly with traders and exporters making brisk purchases of the white fibre, industry sources told Business Line that during December–January, mills generally sourced their requirement and ensured three month inventory pile-up.

“But now, due to erosion in working capital, the mills are not able to procure cotton or hold the stock for more than a month. As it is, quality cotton is no longer available and we are unable to source even the poor quality fibre,” SIMA Chairman, Mr S. Dinakaran, said.

He said that the association has sought the immediate intervention of the Government for extension of a financial package to support cotton purchase. ‘If such support is extended, it would, to some, extent help reduce the NPA rating of the mill,' he said.

Meet to review crop situation

Meanwhile, the Cotton Advisory Board is expected to meet on January 24 to review the crop situation.

Trade analysts expect a drop in production levels going by the decline in arrivals at the market. The CAB had, at its meeting in November, pegged the production at 360 lakh bales, but cotton analysts estimate the production to be much lower at around 330–340 lakh bales.

“A lower crop would only flare up the price and considering the demand from within and the export market, there is a need to bring in some parity between the cotton and yarn prices. Yarn prices have already started to move up; the fabric market though is absorbing the current prices. Any further increase in cotton prices will not support yarn manufacturing,” the SIMA Chief said.

Reiterating the association's demand for imposition of freight equalisation charges on cotton exports, Mr Dinakaran said that if this issue was not addressed immediately, competing countries such as China would source the Indian cotton at much cheaper rates, forcing the domestic mills to shut operations and rendering thousands jobless.

“As it were, mills here are unable to cope with power outages and are operating at around 40– 45 per cent of their installed capacity; banks are not extending working capital support for cotton procurement; and with the expected drop in cotton production levels, the Government should consider protecting the domestic industry by imposing the freight equalisation tax on cotton export and urging banks to extend working capital support for procuring cotton,” he said.

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