Cotton yarn prices fall as demand slows

The prices have fallen mainly due to a fall in demand from fabric makers. A huge inventory pile-up has prompted buyers to go slow on fresh purchases

Cotton yarn prices have declined five-seven per cent in the past fortnight, owing to high inventory and low demand. Sources said the recent fall in yarn prices could also be attributed to a fall in cotton prices.

“Yarn prices have fallen mainly due to the fall in demand from fabric makers. A huge inventory pile-up has prompted buyers to go slow on fresh purchases. Also, cotton prices have fallen by about Rs 3,500 a candy (each of 356 kg) since mid-September,” said K Selvaraju, secretary general, Southern India Mills’ Association. On September 15, combed yarn prices had touched a high of Rs 281 a kg; now, the price stands at Rs 261 a kg. Hanked yarn prices have fallen from Rs 1,115 a bundle (each of 4.54 kg) in mid-September to Rs 1,085 a bundle.

Traders expect prices to fall further, as there is an inventory pile-up of 160 million kg. “China has almost stopped cotton yarn imports. It may be waiting for Indian yarn prices to stabilise at lower levels. But that seems unlikely before November,” said Arun Dalal, a leading cotton trader and industry expert.

The government's decision to do away with cotton yarn export benefits under the focus market scheme (FMS), has also hit exports. “The FMS was to reduce our dependence on China and explore new markets. The government's decision to withdraw the scheme has adversely affected trade,” said a miller based in Andhra Pradesh.

Sources say the government's decision to withdraw benefits under the FMS scheme was unwarranted. “There was no shortage; on the contrary, the stock is 20 per cent more than last year. Also, on a year-on-year basis, cotton prices have increased more than yarn prices,” said Selvaraju. He added cotton prices had increased by Rs 44 a kg in the past year, against the Rs 28-a-kg rise in yarn prices.

“There is an alternative of synthetic yarn. When cotton yarn prices jumped to peak levels in September, many garment buyers increased their purchase of synthetic yarn, as crude imports became cheaper with the rupee appreciating from its low levels,” said Dalal.

However, there is a silver lining for yarn traders and millers. Industry estimates suggest this year, China might not buy cotton from India. As a result, the demand for yarn may rise. Currently, about 40-50 per cent of India's yarn exports are accounted for by China.