Cotton yarn spinners in somber mood over slow demand and compressed prices

A sharp decrease in price of raw cotton in domestic market this year has failed to cheer the yarn makers as buyers of cotton yarn are procuring yarn at a negotiated prices. Last year, the cotton yarn manufacturers who made a excess profits due to rally in domestic and international markets are in a somber mood over slow-moving demand and compressed prices.

The Managing Director of Oswal Group, J L Sharma, informed that margins were cut by 40% to 50% depending upon the product mix. They cannot under utilize capacities as spinning is a round the clock process and they have to keep their workers engaged. Spinners are creating inventories in the hope of revival in demand.

Endorsing lower realizations of yarn makers D K Nair, Secretary General, Confederation of Indian Textile Industry (CITI) said that Industry is not in pink health but the situation is not as critical. The prices have been range bound on the lower side since the season commenced (October 2014) so not many millers are stuck with high cotton procured at a higher cost.

However, hopes are lying on China (the single largest buyer of Indian cotton yarn) is likely to announce its new import quota before the end of January. The delayed shipments to the other importing countries like Bangladesh and Vietnam, the letters of Credit (LCs) of which were to be opened in November and December 2014 are also expected to sail through in a few days if favorable quota comes.

According to the industry revival is round the corner because the demand from end user (garments) did not plummet. Even if China imports less, the other countries that include Bangladesh, Vietnam, Turkey and some European countries will restore the demand and Indian yarn will find its takers.

The average export of cotton yarn from India in the last five years was about 60 million kilogram to 65 million kilogram per month but last year it touched an unprecedented 140 million kilogram a month. If it remains around 90 million kilogram a month, this year, the industry can have a smooth going.

The euphoria over the high demand projections drove many spinning mills add capacities in the recent past, the excess capacities in yarn sector are also responsible for putting them on edge. A revival of demand even at a lower price will help improve viability of the industry.

The Cotton Corporation of India (CCI) has already procured 4 million bales and is likely to ramp up the procurement. The traders are confident that CCI will not sell the cotton lower than the Minimum Support price (Rs 3750 per quintal for medium staple and Rs 4050 for long staple) in the open market and this will help in restoring the price.

Gujarat exporters are of the view that Indian cotton will be in demand as the stocks of US cotton is contamination free so it gets exhausted first and would absorbed soon.