Indian textile exports, including those of cotton yarn, are facing a competition problem from China.
The Chinese currency is depreciating at a time when the rupee is moving up, giving China’s products a price advantage. And, direct export of cotton and cotton yarn to China is getting impacted due to a change in the earlier Chinese policy, of selling cotton from its reserves at a reduced price. It has cut direct import of Indian yarn in the past three months.
The yuan has depreciated 2.4 per cent against the dollar since the start of January, to 6.2 a dollar. While, the rupee has appreciated by 2.7 per cent, to 60.14 a dollar. India had a cost advantage compared to China, where the labour cost is higher. This is getting offset due to the yuan’s slide. And, global buyers have started to negotiate on the price. For instance, the 30’s combed variety of yarn is priced at $3.6 a kg but buyers now want it at $3.5 a kg, the level to which China has cut its price.
“If the rupee keeps appreciating and the yuan keeps depreciating, it will have a bad impact on yarn export. Indian exporters might start to feel the heat,” said S P Oswal, chairman and managing director of Vardhaman Group.
The price of Shankar-6, the benchmark variety of cotton, has gone up 4.7 per cent since the start of the year to Rs 11,838 a quintal.
The Directorate General of Foreign Trade has so far only released data till January of cotton yarn export in 2013-14, which show an increase in these, of 143.8 million kg as compared to 117.1 mn kg in the financial year till January of 2013.
Recently, the International Cotton Advisory Committee said uncertainty on how China will handle its large reserves of cotton next season and the significant gap between polyester and cotton prices did not bode well for cotton consumption in China. To save cost, textile companies there could increase the use of polyester at a time when its domestic economy is on a slower track.
ICAC stated, “In 2013-14, the Cotlook A Index (benchmark index for cotton prices) has averaged 90 cents per pound, while polyester in China averaged 73. However, in March 2014, the price of polyester in China dropped below 70 cents per pound, to about 66 cents, while the Cotlook A Index has averaged about 97 cents. Given the substantial cost difference, cotton’s share of the market is expected to continue its decline this season.” This will also pose a challenge for Indian export of cotton and yarn to China.