Strong demand by Chinese for Indian cotton yarn to push exports

India’s overall cotton yarn exports remained under pressure during the current financial year due to sluggish demand from China, despite a robust demand from Bangladesh. But with Chinese cotton auction which started at a 25 percent premium over the prevailing fibre rate in India. Indian exporters are hoping to see a revival in cotton yarn exports.

The first day of Chinese auction quoted cotton prices between Rs 51,000 and Rs 56,000 a candy (356 kgs) as against Rs 42,000 a candy currently prevailing in most local markets here. This means Chinese cotton is costlier by a wide margin.

Also, the cotton being auctioned in China is up to seven-year old. By nature, the quality of natural cotton starts deteriorating after a two-three years as the fiber starts growing yellow.

Still Chinese spinning mills buying cotton perhaps for blending with fresh cotton. But, because of high prices, India tends to gain despite 3.5 percent levy of duty by China on import from India.

India faces direct competition from Vietnam as China allows zero duty import from there. So, instead of cotton, Chinese textiles mills would move to purchase cotton yarn from India.

Siddhartha Rajagopal, Executive Director, The Cotton Textiles Export Promotion Council (Texprocil) said that they are expecting, therefore, cotton yarn exports to turn positive this year after a steep decline last year.

Meanwhile, cotton yarn demand from domestic mills have also revived with its price has risen by five to seven percent in the last two-three weeks. Yarn price follows the trend of cotton price movement, of course, with a lag of 1-2 months. Today, cotton prices have risen sharply so far this calendar year with the benchmark Shankar 6 variety hitting to the level of Rs 12,188 a quintal on Tuesday, the highest in five months. Cotton (Shankar 6) price has jumped by over 10 per cent this calendar year. This level of cotton price was earlier seen on October 8, 2016. International price of cotton at 79 $-cents per pound is also all time high.

Yarn demand from overseas buyers remained sluggish since October price hike in cotton as importers held their orders in anticipation of price fall. But, now they believe that cotton prices are not going to come down. So, they are booking cotton and cotton yarn. So, the overall demand has revived in the last few weeks, said Manikam Ramaswami, Chairman And Managing Director, Loyal Textile Mills Ltd, a Chennai–based textiles manufacturer.

Spinning mills, however, have urged the government to extend 2 percent tax benefit to yarn sector under Merchandise Exports from India Scheme (MEIS).

According to a recent Care Ratings report forecast, India’s cotton yarn output to decline by five to seven percent to 3,936 million kgs for the financial year 2016-17 on the back of sluggish demand in past months with substitution taking place from man made fibre (MMF) as well as distressed direct yarn exports due to lower demand from China. Yarn demand in other export markets will be healthy.

For the April–December 2016, India’s cotton yarn exports slumped by 12 percent to 872.19 million kgs from 987.21 million kgs in the corresponding period last year. Cotton yarn exports from India rose by a marginal 4.29 percent at 1307.11 million kgs for the financial year 2015-16 from 1253.33 million kgs for the previous year.