Cotton prices drill holes in denim makers' pockets

Denim companies are feeling the heat of spiralling prices and tumbling production of short staple cotton.

Short staple cotton prices have risen about 20 per cent this year. The cotton variety is mainly used for manufacturing denim fabric. The price surge is likely to erode the profitability of these companies.

Although medium staple cotton output, especially BT cotton, has been increasing since its introduction in India, short staple cotton output has been declining for the past three years.

Around 70 per cent of cotton grown in India is of the medium staple variety.

Short staple cotton production stood at 8 million bales in 2006-07, which declined by 50 per cent to 4 million bales in 2007-08.

"The downturn is expected to continue. All over the world, production of short staple has been slipping down. America and Russia and Uzbekistan are one of major short staple growing countries in the world," said Arun Dalal of Arun Dalal and Co.

Lower production has fuelled the prices of short staple by 20 per cent. Currently, the prices of short staple cotton are at Rs 17,000 to Rs 18,000 a candy from about Rs 14,000 per candy last year.

Karnataka, Gujarat and Punjab are one of the states where this rain-fed cotton variety is grown. Short staple varieties available in India include Kalyan V-797, J-34, F-414 and Bengal Deshi.

"Cotton prices have increased by around 30 to 40 per cent in past few months and short staple is no exception. However, there will be a shortage of short staple cotton in India as the production of short staple is plunging consistently.

"Higher prices pressure the margins and may erode the profitability of denim companies," said D K Nair, secretary general, Confederation of Indian Textile Industry (CITI), said.