Cotton and yarn prices have declined by up to 10 per cent during the past one month on a domestic supply glut that emerged after exports to China came to a grinding halt. The cessation of shipments to that country was caused by the lockdown of shops and factories there, following the coronavirus outbreak.
Raw (unginned) cotton in the Gondal (Gujarat) market shed almost 10 per cent to trade at Rs 4,280 a quintal on Wednesday from a level of Rs 4,755 a month ago. Cotton yarn lost 2-3 per cent over the last one month, while synthetic yarn declined by 4-5 per cent during the past one month, following a fall in crude prices.
Atul Ganatra, president of Cotton Association of India, said globally cotton yarn prices have dropped to 60.50 cents on the Intercontinental Exchange on February 28 from 71.5 cents. This has also impacted exporters margins.
The lockdown in China of retail shops and factories has hit India’s cotton and yarn exports hard with shipments came to an abrupt halt. “India’s cotton and yarn exports to China have halted due to lack of orders from there. Even Indian exporters have not evinced any interest in pursuing with export orders. In case any quality or quantity issue arises after shipment, travelling to China for clearing the cargo will be difficult,” said Arun Sakseria, a city-based cotton exporter.
Price of cotton and yarn is taking a beating due to poor sentiment in the market due to the outbreak of coronavirus in China and deterioration of quality in the present kapas arrivals.
Looking at the decline in cotton prices, the government owned Cotton Corporation of India (CCI) has offered a discount of Rs 3,200-5,000 per candy (1 candy = 356 kg) for old stock purchased in bulk.
The decline in raw material prices is likely to benefit textile mills and their profit margins may go up in the coming quarters.
The abolition of anti-dumping duty on key raw material input PTA has changed the landscape of synthetic textile manufacturers. The Indian textile industry has been stagnating in spite of the slowdown in China.
According to Icra, the coronavirus outbreak has started exerting pressure on yarn realisations, which have corrected by 2-3 per cent since the beginning of February 2020. This follows a brief recovery seen in India’s cotton yarn exports in the month of January 2020 when the exports touched an estimated 100 million kg, in line with India’s historical monthly average, following a weak performance for nine consecutive months earlier.
The domestic cotton spinning industry is highly dependent on exports, particularly to China, with around 30 per cent of the cotton yarn produced in the country being exported, and China accounting for nearly one-third of the exports in recent years.
Jayanta Roy, Senior Vice-President and Group Head, Corporate Sector Ratings, Icra, said, “Even though domestic cotton fibre prices continue to be competitive vis-a-vis international cotton prices at present with a price spread of about 4 per cent (down from 9 per cent in Feb-20), a further correction in international cotton prices amid demand-side uncertainties could render domestic spinners uncompetitive in the international markets, similar to the situation which was witnessed in H1 FY2020.”
For synthetic yarn, Raw material cost has started moderating because the outbreak of coronavirus is likely to impact demand for polyester yarn in China, which accounts for around 65 per cent of global demand. As a consequence, the price of PTA, a key raw material that accounts for more than half of the sales price of polyester yarn, is expected to be under pressure in the near term.