Cotton yarn spinners in doldrums due to sluggish demand

All hopes on China's import quota which may be announced in next few weeks

Cotton yarn manufacturers, who made good money due to a rally in domestic and international markets last year, are facing rough weather due to sluggish demand and low prices.

A sharp decrease in prices of raw cotton in the domestic market this year failed to cheer yarn makers, as buyers are procuring at a negotiated price.  

The decline in cotton prices helped vertically integrated textile units in India but these are too few to set a business trend.

But the industry is projecting a revival before January-end, as China, the largest buyer of Indian yarn, is likely to announce its import quota.

J L Sharma, managing director of the Oswal Group, said margins were down by 40-50 per cent, depending upon the product mix. “We cannot underutilise capacities, as spinning is a round-the-clock process and we have to keep our workers engaged. Spinners are creating inventories in the hope of revival in demand,” he added.

D K Nair, secretary-general, Confederation of Indian Textile Industry, said the sector was not in good shape.

Delayed shipments to the other importing countries of Bangladesh and Vietnam, letters of credit (LCs) for which were to be opened in November and December, are expected to sail through in a few days, if a favourable quota comes.

The average export of yarn from India in the past five years was 60-65 million kg per month, But last year, it touched an unprecedented 140 mn kg a month. If it remains around 90 mn kg a month this year, the industry can have a smooth going.

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

Cotton Corporation of India (CCI) has already procured four million bales and is likely to ramp this up. Traders are confident CCI will not sell lower than the minimum support price (Rs 3,750 a quintal for medium staple and Rs 4,050 for long staple) in the open market and this will help  restore the price.

An exporter from Gujarat feels US cotton is contamination-free, so it gets exhausted first. India’s cotton will be in demand as stocks of US cotton would be absorbed soon.

Revival, according to veterans, is round the corner because the demand from end-users did not plummet. Even if China imports less, others such as Bangladesh, Vietnam, Turkey and some European countries will restore  demand and Indian yarn will find takers.