Cotton yarn prices gain sharply on surging cotton rates, demand

Suggested keywords: cotton yarn, exports, domestic demand, 30s combed yarn, raw cotton, spinning waste, Trading Economics Website, Shankar-6 cotton, bales, candy, China

Chennai, March 1

Cotton yarn prices have increased sharply in India since the beginning of this year in view of a surge in cotton prices, besides domestic and export demand.

“Prices of the 30s combed yarn used by the hosiery sector have been raised by 30-40 per cent by export merchants in Gujarat over the last few weeks. They are quoting the yarn at ₹274 a kg. Prices were ₹245 in January,” said a Rajkot-based trader of raw cotton, yarn, and spinning waste, Anand Poppat.

With demand for cotton yarn being good, at least two months of production of some of the spinning mills has been sold out.

“If you want cotton yarn, you can expect to get supply only late in April or May. If you are lucky, you can get some quantity for March from mills that haven’t sold all their production,” Poppat said.

According to Trading Economics Website, cotton has gained over 13 per cent since the beginning of 2021, with prices rising nearly 10 per cent in February.

Global cotton prices are seen spiking this marketing season (August 2020-July 2021) in view of production projected at a four-year low, higher imports by China and lower carry forward stocks.

“Cotton prices in New York have increased from around 51.44 cents a pound in June last year to around 89.2 cents by February-end. The rise has come despite the country carrying over record stocks of cotton from last season (October 2019-September 2020),” said Southern India Mills Association (SIMA) Chairman Ashwin Chandran.

SIMA is the apex body of the textile industry in south India, representing the sector’s interest. According to the Cotton Association of India, a body of traders, a record 107.50 lakh bales (of 170 kg) stocks were carried over from last season.

According to the Committee on Cotton Production and Consumption (CCPC), a body set up by the Centre and comprising all stakeholders in the industry from farmers to end-users besides government officials, 102.95 lakh bales have been carried over from last season.

With prices dropping a tad during the weekend, cotton prices in New York quoted at 88.48 cents a pound ( ₹51,300 per candy of 356 kg approximately).

According to the Cotton Association of India (CAI) and Gujarat Cotton Trade Association, India’s benchmark Shankar-6 cotton is offered for exports at a little below ₹48,000 a candy.

On Monday, cotton futures for delivery in April ruled 1.17 per cent lower at ₹22,460 a bale or ₹47,033 a candy on the Multi Commodity Exchange.

The Cotton Corporation of India (CCI), which is holding huge stocks of cotton following procurement under the minimum support price (MSP) programme, is also quoting around the same level for exports.

As the textile sector began operating at near optimum capacity, demand for yarn increased since December 2020. This resulted in higher yarn production, but prices have increased, primarily, as cotton prices gained.

“The percentage of increase in yarn prices is lower than the rise in cotton prices. And prices have actually dropped from the peak seen a few days ago,” the SIMA Chairman said.

For example, the 40s count warp yarn topped ₹300 a kg but has now dropped to ₹275-285. Hosiery yarn prices are still lower.

“Yarn prices are expected to be raised again from March 1. It will become difficult for small and medium players in the hosiery sector,” said Textile Exporters Association (TEA) Executive Secretary S Sakthivel.

Besides domestic demand, which has resulted in panic buying, export buying has also pushed up yarn prices.

“China is buying a good quantity. Its purchases have increased 15-20 per cent,” trader Poppat said.

“Besides China, Bangladesh, Peru and Brazil are also importing Indian yarn,” said Sakthivel.

“Despite increased demand, yarn exports don’t even top 100 million kg a month currently,” a textile industry source, who did not wish to identify.

According to data from the Director-General of Commercial Intelligence and Statistics, yarn exports dropped to 959 million kg in fiscal 2019-20 compared with 1,313 million kg during 2013-14.

In terms of value, yarn exports have dropped 5 per cent on a compounded annual growth rate (CAGR) basis from $3.9 billion in 2014-15 to $43.4 billion in 2017-18. The latest data are not available yet.

“If you look at the yarn-cotton correlation, which is 0.95, you will understand how much pressure spinning mills are under. The mills make only 2-6 per cent profit,” the textile industry source said.

Yarn prices began heading north after supplies were unable to match 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.

Textile industry sources said they had urged the Centre to ensure that the CCI, which had bought nearly 100 lakh or one-fourth of the total cotton produced in the country this season.

“But that has not happened and spinning mills are now shouldering the blame for the yarn price spike,” the sources said.

CAI has estimated production unchanged from last year at 360 lakh bales, while CCPC has pegged it at 371 lakh bales against 365 lakh bales.

Traders estimate that CCI could be holding at least 65 lakh bales, after taking into account its sales of about 125 lakh bales to trade and exporters.

“There is a demand for all types of yarn, from 16 counts to 60 counts,” said Rajkot trader Poppat.

“The problem for small and medium hosiery manufacturers is that they have already committed to buyers at a lower price. Even a 5 US cents spike will force buyers to opt out or shift to other countries,” said TEA’s Sakthivel.

“Probably, Indian exporters, especially garment units, should try and link their contracts to the New York cotton index. On the other hand, they can even consider hedging the position,” the textile industry source said.

SIMA’s Chandran blamed the panic purchase of yarn for the spike.

The textile industry sources concurred with the view, saying, “If the buyers can avoid panic purchases and go hand-to-mouth buying besides keeping quiet, they can expect prices to drop.”

According to the sources, the problem that spinning mills face is that they have to pay cash for buying cotton. “At most, mills get 30 days credit. But mills offer credit from between 60 days to 90 days,” the sources said.

Ratings agency Ind-Ra said that global cotton prices have also increased due to the curbs imposed on Xinjiang region (China) cotton by the US administration. This is benefitting Indian domestic spinners,” it said.

Textile industry sources say that if the US eases the curbs, then prices could head south.

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