Following directions by the textile ministry, the Cotton Corporation of India (CCI) will now start selling its remaining stock of about 24,000 bales to only small and medium scale mills as these mills were finding it difficult to purchase cotton as prices had shot up, said BK Mishra, CMD of CCI.
The sudden spurt in cotton prices could not be absorbed by the textile industry and spinning mills, suffering due to surplus spinning capacity due to the reduced demand for yarn exports started facing acute crisis. High fixed costs make production cuts difficult. As a result NPAs are increasing and mills are partially or fully closing down. Old and new mills have a cost differential of 10% in an industry, which doesnâ€™t even have a consistent net profit margin of 5%.
Interestingly, CCI had purchased 8.4 lakh bales of cotton at minimum support price this year. The corporation has supplied nearly two lakh bales to National Textile Corporation and state co-operative mills. It had also sold about 1.5 lakh bales a month over the last four months through e-auction.
It now has some 24,000 bales, which will be sold to small and medium scale mills.
Significantly, the spot price of the benchmark cotton variety, Sankar-6, was around Rs 33,000 per candy of 355 kg during first week of April 2016 and it increased to Rs 42,700 by the end of June and now ruling at Rs 48,000 per candy. Thus, the price has increased by 45% resulting in an increase of Rs 60 per kg of clean cotton cost used for combed count yarns.
The textile mills have welcomed the direction from the ministry as it will bring stability to prices and meet the raw material requirement of the smaller mills, said M Senthil Kumar, chairman, Southern India Millsâ€™ Association.
Kumar has advised all the mills to avoid panic buying as the prices would soften with the availability of 43 lakh bales of closing stock estimated by the Cotton Advisory Board (CAB), once the imported cotton arrives. He has added that the import during the next three months might exceed 15 lakh bales as large number of mills have already contracted for imports with African countries and Australia.
The acreage for the season of 2016-17 is likely to touch 115 lakh hectares to 118 lakh hectares as there are cases of farmers switching to other crops in parts of Maharashtra, Gujarat and Andhra Pradesh.
CCI expects the output to cross some 35 lakh bales for the 2016-17 season and prices should go down by October-December when the crop arrivals commence. In the current situation, understandably no exports are expected. However, some imports are happening with mills contracting cotton from South Africa and Australia. According to Mishra, the coming 15 days will be important as far as sowing operations of cotton are concerned.
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