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With the cotton prices rising again in recent times to close to Rs 44,000 per candy, yarn makers are under margin pressure. Cotton prices that had been stable till February-March later on saw a gradual rise from Rs 41,500-42,000 per candy to Rs 44,000 per candy, wherein a candy is about 356 kg.
While cotton prices have been rising, yarn makers have not been able to raise prices simultaneously due to low demand.
According to cotton yarn makers such as Suryalakshmi Cotton Mills, rising cotton prices have resulted in shrinking margins in the last one month. "Rise in cotton prices coupled with restricted demand has led to increased pressure on margins," said Paritosh Aggarwal, managing director of Suryalakshmi Cotton Mills that manufactures cotton yarn as well polyester yarn. Industry sources cite a decline in margins by around 5-7 per cent in last one month. What's more, demand too has been stable and low for cotton yarn from fabric makers.
"Margins for yarn makers is typically low. In such a scenario, the recent rise in cotton prices has led to even further decline in margins," said Jayesh Pathak of Bombay Yarn Traders Association. At Rs 44,000 per candy, the yarn industry is currently the only part of the textile chain that is feeling the maximum heat. On the other hand, fabric and garment industry has seen stable input prices as well as stable sales in recent months.
"It is only the yarn makers that are facing pressure on margins. Fabric and garment sales have been doing good. However, with China also lowering its yarn prices, domestic yarn makers are not able to raise their prices despite input costs such as cotton rising in recent times," said DK Nair, secretary general of Confederation of Indian Textile Industry (CITI). Textile mills, on their part, are attempting to create a level playing field with traders for purchase of cotton. For this, apart from a 5 per cent interest subvention, mills have been demanding extension of credit limit from current 3 months to 9 months in order enhance their cotton inventory holding capacity. Mills are of the view that except for a few large players, almost the entire industry ends up buying a very small portion of cotton during the peak season of November to March, while rest is bought by wealthy traders or exported to competing countries like China and Pakistan, among others.
