+917718880355

news

Spinning mills resort to capacity cut to overcome domestic glut

YarnsandFibers News Bureau 2015-06-11 16:00:00 – Chandigarh

Indian spinning mills are looking to domestic demand from the garments sector for relief from oversupply situation caused due to decline in cotton yarn exports to China. China has been a major importer of cotton yarn from India with a share of about 46% of Indian exports of the commodity, but that has declined substantially – to an estimated 4% in the first three quarters of FY2015 – undermining the health of Indian spinning mills.

The impact of China policy is seen in the form of lower capacity utilization in the mills in southern states where most of them have resorted to an estimated 20% cut in production.

In April 2014, the Chinese government ended its 3-year-long programme to stockpile raw cotton to support local growers and instead started offering subsidies directly to farmers. With the Chinese government’s decision to offload its reserve stock, spinning mills there can access cheaper cotton from the local market, thus reducing their dependence on imports, which hit Indian exporters in FY2015.

D K Nair, secretary general of the Confederation of Indian Textile Industry (Citi), said that there are alternative markets Bangladesh, Vietnam and Egypt that can offer some respite to the exporters but their base remains small compared to China. Higher exports to smaller nations can offset some loss but the firefighting is on at the end of the millers.

According to most of the prominent domestic millers, the Cotton Corporation of India is hoarding about 8.5 million bales of cotton, or about 20% of the total annual crop which, if offloaded, could ease out the price. At this stage, farmers would not be effected by a correction in cotton price but it would save the spinning sector.

A mismatch between India’s spinning sector and fabric sector – yarn manufacturing expanded rapidly in the past few years, while fabric manufacturing base remained stagnant – has created a glut in the domestic market making Indian players vulnerable to the export demand, said Nair.

R K Dalmia, Chairman of Texprocil, the Cotton Textiles Export Promotion Council said that despite a good cotton crop and a substantial stock with CCI, the spinning mills are paying for cotton through their nose. The margins have been squeezed due to slow demand and government is not taking any corrective measures to tackle the situation.

The garmenting sector is expected to do well this year as the demand from Europe and USA is picking up. This may trigger the demand for cotton yarn in the domestic sector, said T Kannan, Chairman and Managing Director Thiagrajar Mills, Madurai.

According to Krunal Modi, manager (corporate ratings) at Care, the demand dynamics likely to change in coming months as new destinations like UAE may translate the recessionary trend into opportunity for garment sector plus the growing demand from EU and USA may perk up the exports. This may happen in 12 to 18 months. (The) Next 3 to 6 months may really test the resilience of the Indian spinning sector.

For many cotton spinning units in India FY14 was an exceptionally good year due to increasing export volumes and steady domestic consumption along with high average sales realization. However, the decline in export demand mainly from China is likely to result in moderation in their performance during FY15. Further, cotton spinning units have suffered inventory losses in Q2FY15 and Q3FY15 on the back of decline in cotton and cotton yarn prices.

Please Login to comment

Other services

Ask for free sample Report


why us?
21 yrs

experience

Fortune 500

Customer Base

100%

dedicated team

55+

Countries Served Worldwide


newsletter

Register below to receive our newsletters with latest industry trends and news!