Cotton yarn prices have increased sharply since the beginning of the new cotton season (October 2021-September 2022), mainly because of cotton rates increasing to record highs across domestic markets in the country.

Record prices for cotton and the resultant costlier yarn worry the stakeholders with spinning mills, which convert ginned cotton to yarn, planning to take up the issue with the Centre.

Protest shutdown

Coimbatore-based Indian Cotton Federation in Tamil Nadu has called for a ban on cotton futures on the Multi Commodity Exchange. Another Tamil Nadu-based organisation Tirupur Exporters Association (TEA), has announced that garment export units in the region will down shutters in protest against the hike in the raw materials price on January 17 and 18.

“Yarn prices are keeping pace with cotton prices, though slightly in a staggered manner. It takes almost a week for yarn prices to catch up with cotton prices, up or down,” said Major General OP Gulia, CEO, SVP Global Ventures owns spinning mills in Rajasthan and Oman.

Earlier this month, suppliers increased prices of all varieties of yarn by ₹30 a kg for Tirupur units. “Prices are revised on a monthly basis for Tirupur yarn users. But in Gujarat, prices are fixed on a daily basis,” said Anand Poppat, a Rajkot-based cotton, yarn and cotton waste trader.

On Friday, 30 CCH (combed cotton hosiery) yarn was quoted at ₹360 a kg, up over ₹10 since the start of the week.

Up 2.3% since Jan 1

TEA President Raja M Shanmugham told media on Wednesday that “the right kind of strategy to control the ever-increasing cotton prices” was required. He alleged cartelisation of traders besides seeking removal of import duty on cotton and banning cotton exports.

“It is mainly due to high demand for yarn. There are orders for the next three months lined up. Loom owners are picking up the yarn on a day-to-day basis,” said Gulia.

Poppat concurred with the SVP Global official’s view on the demand for yarn. Cotton prices worldwide have increased on firm demand from China and tight supplies. The commodity, which gained 45 per cent last year, is on a bull run, also given an estimated fall in production and ending stocks.

On the Intercontinental Exchange, New York, cotton for delivery in March was quoted at 115.79 US cents a pound (₹69,800 a candy of 356 kg). Since January 1, the natural fibre has gained 2.3 per cent.

On Friday, cotton in Rajkot was quoted at ₹74,000 a candy, while it quoted even higher in other places such as Nashik. On the Multi Commodity Exchange, cotton for delivery in February was quoted at ₹36,100 a bale (170 kg) or ₹77,508 a candy.

‘Affecting all aspects’

SVP Global’s Gulia said surging cotton prices had of cotton have affected every aspect of the spinning mills. “The raw material (cotton) comprises almost 68 per cent of the cost of manufacturing yarn. Therefore rising cotton prices have hugely affected the stocking, working capital requirement and cost of production,.” he said.

Officials in the spinning sector also blame the poor quality of the crop for the sharp spike. This season’s cotton crop has been affected by heavy rains in growing areas.

But the SVP Global CEO said since yarn demand was “ever-increasing”, domestic demand for cotton was also huge. “Industry (spinning) does not want to hold huge stock as they are expecting prices to correct,” he said.

Other spinning industry officials, too, said that at the most mills could have less than a month’s cotton inventory with them.

Ramanuj Das Boob, a sourcing agent for domestic and multinationals in Raichur, Karnataka, said the bullish sentiment in cotton is due to lack of carryover stocks and lower crops crop. “Even the lower quality cotton is fetching better prices due to the non-availability of good cotton,” he said.

Rajkot-based Poppat said the price spike could also have been due to estimates, particularly concerning with regard to ending stocks and consumption, going wrong.

“People had estimated the ending stocks at around 75 lakh bales, but I don’t see it above 60 lakh bales. Consumption could also be some 20 lakh bales higher than the 340 lakh bales estimates. There is a 45 lakh bales difference even if you were to accept that production is 340 lakh bales as claimed by some,” he said.

The Committee on Cotton Production and Consumption (CCPC), a body set up by the Centre comprising all stakeholders in the country, has projected the output for this season at 362.18 lakh bales and estimated consumption at 338 lakh bales.

Yarn exports slip

Gulia said spinning mills preferred to sell in the domestic market in view of a huge demand here. This is despite an equally good demand in the global market. “As a result, exports have decreased. Major international markets for Indian yarn are Bangladesh, Vietnam, Pakistan, China, Turkey,” he said.

Poppat and spinning industry officials say one way to check the rise in cotton prices would be to allow duty-free imports. On Wednesday, Southern India Mills Association Chairman Ravi Sam urged the Prime Minister to scrap the 11 per cent import duty on cotton and cotton waste imports.

“Scrapping the import duty will check the rise in prices but farmers will not be affected in any way. On the other hand, the Centre will not ban cotton futures since it is not an essential commodity,” said Poppat. He said that cotton exports are unlikely to be affected by high domestic prices.

Until January 2, at least 15 lakh bales of cotton have been exported. The CCPC has estimated exports at 45 lakh bales this season compared with 77.59 lakh bales last season.

(With inputs from Vishwanath Kulkarni, Bengaluru)