Cotton yarn makers facing margin pressure over cotton price rise and low demand

Cotton prices that remained stable till February-March is seen gradually rising from Rs 41,500-42,000 per candy to Rs 44,000 per candy, wherein a candy is about 356 kg. The recent rise in cotton prices has put yarn makers under margin pressure as they are unable to raise prices at once, due to low demand.

According to cotton yarn makers, rising cotton prices has led to shrinking margins by around 5-7 percent in the last one month. Moreover, rise in cotton prices coupled with restricted demand has further resulted to increased pressure on margins.
Margins for yarn makers are typically low. At Rs 44,000 per candy, the yarn industry currently the only part of the textile chain that are facing maximum pressure on margins. On the other hand, fabric and garment industry has seen stable input prices as well as stable sales in recent months.

Moreover, with China also lowering its yarn prices, domestic yarn makers are not able to raise their prices despite input costs such as cotton rising in recent times.

Textile mills are of the opinion that excluding a few large players, almost the entire industry ends up buying a very small portion of cotton during the peak season of November to March, while rest is bought by wealthy traders or exported to competing countries like China and Pakistan, among others.

However, textile mills are making attempts to create a level playing field with traders for purchase of cotton. For this, apart from a 5 percent interest subvention, mills are also demanding extension of credit limit from current 3 months to 9 months in order increase their cotton inventory holding capacity