Cotton yarn prices have dropped from the peak seen at the beginning of this year and could decline further from May 1 when a revision in rates is due owing to slack demand.

“Prices of almost all counts of yarn have dropped by at least ₹10 a kg as demand is low due to the second wave of coronavirus. Production in textile mills has dropped and it is impacting yarn offtake,” said Rajkot-based trader Anand Poppat, a trader in raw cotton, yarn and spinning waste.

“Last six months were a good period for Indian spinning mills because there was a huge shortage of cotton yarn due to last year’s lockdown (to tackle Covid) and huge demand for yarn came from domestic and international markets. So, spinning mills performed well.

“But again the problem has slowly started due to the increase of Covid cases and many States have announced lockdowns. This has forced many spinning mills’ workers, who have come from other States, to go back to their villages due to fears of strict lockdown like last year,” said Atul Ganatra, President, Cotton Association of India, a representative body of cotton trade.

Surplus stocks

“Warp yarn prices have dropped by ₹30 a kg as there is surplus. Even weft yarn demand is down due to closure of mills in Maharashtra. From May 1 onwards, prices could drop further,” said K Selvaraju, Secretary-General, Southern India Mills Association (SIMA), the apex body of the textile industry in southern India.

The current trend is in sharp contrast to the price surge witnessed during January-March this year following domestic and export demand.

“There is a total slowdown in demand for yarn. Merchandise exporters are dispatching stocks on hand rather than buying from mills,” Poppat said.

Last year, cotton consumption dropped by 80 lakh bales (of 170 kg) to 250 lakh bales due to the lockdown to tackle Covid from the usual 330 lakh bales, said Ganatra.

Selvaraju said a hue and cry was raised over the spike in yarn prices despite the fact that cotton prices had increased sharply from ₹34,000-48,000 a candy (of 356 kg) in the last 6-9 months.

“Exchange rates have increased, diesel prices have gone up and we were forced to give credit during May-July last year. Whatever the hike in yarn prices, they have gone only to pay the interest for the loans availed of by spinning mills,” Selvaraju said.

Last month, spinning mills had made forward sales of at least two months of their production. “These deliveries are pending,” said Poppat.

Ganatra said the closure of ginning factories across the country has forced cotton growers to wait to sell their produce.

Though over 90 per cent of the cotton produced this year has been sold, there are still farmers who are holding their produce. They had held the stocks back expecting prices to rise during the off-peak arrival season during April-August.

Ginning factories in Gujarat have ended their operations and they are happy getting higher prices for cottonseed derived by processing raw cotton into lint, Poppat said.

SIMA’s Selvaraju said that spinning mills were put under tremendous pressure to bring down yarn prices despite their overheads rising due to a slew of factors.

“The Cotton Corporation of India (CCI) bought cotton at MSP. Still, it cut prices of the current season’s crop by only ₹100 a candy. It cut rates of cotton produced last year by ₹1,100 a candy. And cotton from Gujarat, whose quality was affected, was offered ₹800 lower,” he said.

Lockdowns affect business

Spinning mills have urged the Centre to allow their units to run without any curbs now. Lockdowns in some States have resulted in just one shift being run and production dropping to 25-30 per cent of the capacity, an industry source said.

The second wave of Coronavirus has affected yarn movement over the past 15 days. “A yarn inventory of 15 days has built up,” the SIMA Secretary-General said, adding that the situation could improve once the vaccination of those aged between 18 and 45 years began.

“Workers are more safe in factories. Mills are making arrangements to vaccinate workers within their premises. Once the process begins, all mills will start,” Selvaraju said.

Higher cotton prices

The slowdown in yarn demand comes at a time when cotton prices have gained nearly 13 per cent since the beginning of the year. Prices were up over five per cent last week and nearly nine per cent in the past month.

On Monday, cotton prices rose on dry weather in key growing regions and higher-than-expected demand. Cotton futures on International Continental Exchange for delivery in July increased to 89.84 cents a pound (₹53,000 a candy).

On MCX, cotton futures for June delivery quoted at ₹22,200 a bale or ₹46,490 a candy. Export benchmark Shankar-6 cotton was quoted at ₹45,800-46,200 a candy on Monday, according to Gujarat Cotton Trading Association.

In Gujarat, India’s largest cotton producer, prices at terminal agricultural markets have dropped to below minimum support price level of ₹5,515 a quintal. In districts such as Vadodara, Amreli, Bharuch and Ahmedabad, prices are ruling between ₹5,200 and ₹5,600 a quintal.

Yarn prices headed north after supplies were unable to match demand from December onwards. The mismatch cropped up as garment and fabric manufacturers resumed production operations quicker than the spinning sector.

This results in the yarn inventory with the spinning mills drying up, while the rise in cotton prices compounded the issue.

As regards raw material cotton, there is no concern on its availability. CAI has estimated production unchanged from last year at 360 lakh bales, while the Committee on Cotton Production and Consumption, a body comprising all stakeholders of the textile industry, has pegged it at 371 lakh bales against 365 lakh bales.