The mill sector is in a fix. Rising cotton prices, very marginal improvement in yarn rates (not commensurate with the increase in the price of cotton) and steep increase in power cost, seem to have quashed the expectations of the spinning sector.

Industry insiders now sense doom as there is perceived shortage of cotton, not just in India, but globally and prices have started to skyrocket.

Price rise

A quick glance at the cotton price behaviour shows that Bengal Deshi has shot up from Rs 35,400 for a candy of 356 kg in mid-June to Rs 43,300/candy last week, and DCH 32 which was quoting Rs 45,500/candy on June 15, rose to Rs 53,000 last week.

Other commonly used varieties such as LRA 5166 also increased Rs 3,500/ candy in the last one month to Rs 36,500 and Shankar -6 from Rs 32,600 to Rs 37700/ candy on July 20.

Cash-starved mills are neither able to source their raw material requirement at high rates nor are they in a position to wind up their operations, a mill owner told Business Line .

A steep decline in the capacity utilisation level, he says, has added to per unit production cost.

To add to the woes of the sector, the Tamil Nadu Government initiated an upward revision in power cost from Rs 4.82/unit to Rs 6.45/unit from the start of this fiscal.

A comparative study of the hike in power charges in neighbouring States shows that it has risen from Rs 4.64/unit to Rs 5.85/unit in Andhra Pradesh, while the prevailing rate in Karnataka is marginally lower than Tamil Nadu at Rs 6.20/unit. Kerala has proposed a hike from Rs 3.79/unit to Rs 4.96/unit. Industry sources say that the Fuel Price Adjustment Charge (FPAC) in Tamil Nadu will be known only in August. Meanwhile, sources say there has been no corresponding increase in cotton yarn prices compared to the input cost.

Hank yarn rates have remained stable in the last one month; the price of cone yarn jumped by Rs 5 to 10 a kg across counts between July 13 and 20, while the hosiery yarn rates saw no change.

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