Cotton yarn exports have started moderating, owing to a fall in orders from China and the withdrawal of a few export incentives. This, along with weak demand in the domestic market, has resulted in higher inventory levels.
“Export demand has become weak; domestic demand is also very weak. Spinning mills have already started sitting on surplus cotton yarn inventory,” said Vardhaman Group Chairman S P Oswal.
However, due to good demand for cotton yarn from China and South American countries early this financial year, exports could touch an all-time high of 1,200 million kg in 2013-14. “The shipment of cotton yarn has been good so far but we are not sure if this will sustain,” said A B Joshi, textile commissioner.
The Cotton Advisory Board has said so far, 1,000 million kg of yarn had been exported. However, the industry expects during the remainder of 2013-14, exports would be restricted to 200-300 million kg.
Exports to Latin American countries account for about 10 per cent of India's overall cotton yarn exports. However, after the government's withdrawal of the focus market scheme (which focused on Latin America and Africa), this demand is expected to fall in the coming months.
“Inventory has started to pile up for cotton yarn manufacturers, as export demand has been weak in the last few months and domestic demand has been affected by inflation,” said Ujwal Lahoti, vice chairman of Texprocil. In the past month, cotton yarn prices have fallen Rs 25 a kg—the price of 40s carded cotton yarn is Rs 200 a kg, while the 40s combed variety is Rs 225 a kg.
Even if 1,200 million kg is exported, the surplus would be huge. Production of cotton yarn is estimated at 3,800-3,900 million kg, while domestic demand is pegged at 2,500 million kg.
Prerana Desai, vice-president (research), Kotak Commodities Services, said, “Cotton prices are on a downward spiral and may fall further due to the record high crop. This will be good news for yarn spinners.” Since September, cotton prices have fallen 15 per cent to about Rs 40,000 a candy (356 kg).