Cotton prices could fall amidst poor demand from spinning mills

Demand for cotton from domestic spinning mills might decline, with China continuing to reduce yarn imports. According to spinning mills, their low purchasing power has also led to a fall in demand.

"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 a fall in demand. This should pull down cotton prices," said K Selvaraju, secretary-general, South Indian Mills Association.

Since April, demand has fallen by 15-20 per cent, say industry experts. "Cotton prices have already fallen by about Rs 500 per candy (356 kg) and are expected to fall by another Rs 1,000-2,000 per candy owing to poor demand from spinning mills," Selvaraju added. According to D K Nair, secretary-general of the Confederation of Indian Textile Industry, spinning mills' holding capacity as well as purchasing power has been impacted in recent times. Plus, cotton prices rose "unnecessarily" by Rs 1,000-1,500 per candy 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 a decline in demand for domestic cotton, which industry players expect to bring down cotton prices by Rs 1,000-2,000 per candy. Currently, while imported cotton costs about Rs 41,000 per candy, domestic cotton is in the range of Rs 42,500-43,000.

Till 2010-11, when cotton prices fluctuated a lot, spinning mills used to hold cotton inventory of four to six 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 noted.

Despite this, yarn production has increased slightly owing to better power supply. According to data provided by the Textile Commissioner's office, cotton yarn production increased by five per cent during May 2014 at 332 million kg and by five per cent during April- May 2014 at 662 million kg.

According to Paritosh Aggarwal, managing director of Suryalakshmi Cotton Mills, availability of quality domestic cotton and uncertainty of crop size in the new season also contributed to this.