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Price volatility hits spinning mills

Leads to over Rs 5,500 crore erosion in working capital

TE Narasimhan  |  Chennai 

The increase in demand for textile products has enabled the spinning mills to break even and now there are signs of recovery. To maintain the momentum, the government must expedite the Rs 35,000-crore debt restructuring package, said S Dinakaran, chairman, South India Mills’ Association (SIMA).

Majority of the textile mills in the country faced one of the most difficult times in the history last fiscal, he said.

In his address at the 53rd annual general meeting of Sima at Coimbatore recently, Dinakaran said power situation, lack of manpower and inconsistent cotton export policies resulted in volatility in price, leading to over Rs 5,500 crore erosion in the working capital.

Cotton prices registered the highest volatility in 2010-11 owing to global shortage by around 10 per cent and also due the short-sighted export policies of the government.

The price of Shanker-6, which was at Rs 38,000 per candy of 355 kg during October 2010, rose to Rs 61,800 at the end of March 2011 but fell sharply to about Rs 31,000 per candy at the end of July 30, 2011. “This volatility resulted in over Rs 5,500 crore erosion in the working capital for the spinning sector,” said Dinakaran. Thereafter, prices saw a gradual increase till September 2011 and ruled at Rs 34,000 per candy at the end 2011-12.

The decline continued till the middle of June 2012 and thereafter the prices reached around Rs 39,000. “…this again was due to the inconsistent cotton export policies during March and April 2012,” said Dinakaran.

However, during the season 2012-13, the area might be slightly lower than 2011-12. The mill consumption is expected to increase marginally due to improved market conditions, said Dinakaran.

Around 13 million bales were exported during 2011-12 as against the Cotton Authority Board’s original estimate of 8.4 million bales leaving a closing stock of around 2.8 million bales of substandard quality cotton for the domestic industry, the lowest stock ever maintained in the recent past.

First Published: Fri, September 21 2012. 00:13 IST