Cotton prices may fall amidst poor demand from spinning mills

Demand for cotton from domestic spinning mills is set to decline further with China continuing to decrease cotton yarn imports from India, adding further pressure to the commodity's prices.

Spinning mills state it is also low purchasing power that has led to fall in demand for cotton for producing yarn.

"China's cotton yarn offtake has been poor. Our exports to Europe have also come down. There is no liquidity among spinning mills which has led to fall in demand. This should pull down cotton prices," said K Selvaraju of South Indian Mills Association (SIMA).

Since April, demand has fallen by 15-20%, say industry experts. "Cotton prices have already fallen by around Rs 500 per candy and are expected to fall by another Rs 1000-2000 per candy owing to poor demand from spinning mills," Selvaraju added.

According to DK Nair, secretary general of Confederation of Indian Textile Industry (CITI), spinning mills' holding capacity and purchasing power has been impacted in recent times. Add to that, cotton prices rose "unnecessarily" by around Rs 1000-1500 per candy of 355 kg recently.

Due to low purchasing power and holding capacity, spinning mills are buying imported cotton, especially the Western African cotton since domestic cotton is costlier.

This has led to decline in demand for domestic cotton which industry players anticipate will bring down cotton prices by Rs 1000-2000 per candy. Currently, while imported cotton costs around Rs 41000 per candy, domestic cotton is in the range of Rs 42,500-43000 per candy.

Till 2010-11, when cotton prices fluctuated a lot, spinning mills used to hold cotton inventory of 4-6 months.

"But having burnt their fingers, they now purchase cotton hand-to-mouth and do not stock much. Hence, with reduced cotton yarn exports to China and Europe coupled with liquidity issues, spinning mills have reduced purchase of cotton," Selvaraju added.

Despite this, yarn production has increased slightly owing to better power supply. As per the Textile Commissioner's Office data, cotton yarn production increased by 5% during May 2014 at 332 million kg and by 5% during April- May 2014 at 662 million kg.

Moreover, availability of quality domestic cotton and uncertainty of crop size in the new season are also some reasons that Paritosh Aggarwal, managing director of cotton yarn and denim fabric player Suryalakshmi Cotton Mills Limited attributed to.