Vardhman, SEL in a fix as cotton price soars

Blame hoarders for the rise; many fabric making mills have opted for blending more and more of synthetic yarn

Neeraj Saluja of SEL Manufacturing, a vertically integrated textile company with operations in Punjab, Madhya Pradesh and Haryana, had stocked cotton but not in enough quantity. He’s now in a fix. A rise of about 40 per cent in cotton prices over the past two months has hit both small and big spinning mills as yarn prices are up only 10-15 per cent.

Many fabric making mills have opted for blending more and more of synthetic yarn, much cheaper than cotton yarn. This has aggravated the problem for cotton spinners.

For Saluja, Vardhman Spinning, the Nahar group and other big entities, blended yarn is not a sustainable option. Only a small segment of garment makers has substituted blended for cotton yarn. And, over-production of blended yarn might mean a glut in the market.

A senior official in Vardhman Spinning said they might go for producing finer counts of cotton but this had to match the demand curve. Daman Oswal, director of Nahar Industrial Enterprises, says: “At the end of the season, there do arise supply shortages but this year it crossed all barriers, due to aggressive buying by hoarders. Multinational bulk buyers with access to cheap funds hoard cotton during high arrival days. As the yarn market is not aggressive, we cannot pass on the entire cost increase on to the buyers.”

A Shaktivel, president, Tirupur Exporters Association, says importing is a better option for southern consumers. He says mills in that region have resorted to import of cotton from Australia and Africa. Imported cotton at Tamil Nadu ports costs Rs 44,000 a candy (356 kg) against Rs 48,000 a candy for domestic cotton. However, it takes 35-60 days for order delivery and only a few spinners who’d anticipated a huge jump this year could order for imported cotton in time to reap the benefits. This option is not available to spinners in the north, as the distance from ports adds freight charges, making imported cotton unviable. Small mills which economise on maintaining of inventory are hurt the most.

B K Mishra, chairman, Cotton Corporation of India, told this newspaper: “We have been offloading stock more aggressively since July 15. We have sold 10,000 bales (170 kg each) since then, with an upper limit of 500 bales a day, to facilitate small mills and curb hoarding.”

Adding: “The price had shot up to Rs 50,000 a candy a few days back and is now Rs 47,000 to Rs 48,000 for the (benchmark) Shankar-6 variety. We procured 850,000 bales this season (it ends September 30) and are left now with 27,000 to 28,000 bales.”

He refused to talk on preparations for the next season, starting October 1, while agreeing to reports of less cotton sowing this year in all states.