Low cotton prices may hit yarn millers’ margins

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The recent fall in raw cotton prices and subsequent decline in cotton yarn prices seem to have hit yarn markers. Spinning mills across the country fear it would put their margins under pressure.

Yarn prices have dropped from a peak of Rs 280 a kg for the benchmark variety to Rs 225 a kg in the last one month. The weakness in prices was mainly on account of higher yarn inventory pile up and reduced exports. Cotton prices, too, have fallen adding to woes of these millers. Prices have fallen to Rs 42,000 a candy (356 kg) recently from the peak of Rs 62,000 a candy in April.

“The government had resumed yarn exports from April, but removed export incentives like duty drawback. This discouraged exports, as the prices in the international markets too have also come down from its peak levels of February-March, squeezing the export margins,” said Sanjay Jain, president, Kolkata Association of Garment Manufacturers.

Terming the current situation a grave crisis for the spinning millers, K Selvaraju, secretary general, South India Mills’ Association (Sima) maintained that the first and second quarters of the current year could be worst. “Margins are severely under pressure for the millers. Most of the spinning mills across country are operating at 50-60 per cent of capacity. We believe that our carryover stocks would swell up to 500 million kg from the normal 80-100 million kg. The situation may worsen if timely actions are not taken,” said Selvaraju.

Yarn spinners are now waiting for prices to stabilise before bringing their stocks into the market. Demand at these levels do exist, but, it still remains hand to mouth, as they expect prices to fall further. Robust demand will come in for yarn when prices fall further. Currently, the demand is weak.

Synthetic yarn had also seen a fall in prices, but demand for synthetics still remains. Further indication for synthetic yarn prices will come from crude oil prices. Synthetic yarn prices a month ago were at Rs 82 a kg when crude oil was at $128 per barrel and now it has fallen to Rs 72 a kg.

According to Cotton Advisory Board estimates, India’s cotton production is projected at 31.2 million bales (176 kg) this year, while exports were capped at 5.5 million bales.

Alarmed by the steep fall in yarn prices and dismal export prospects, spinning mills may stop production. A formal decision will be taken at a meeting of all regional associations of spinning mills under the aegis of Confederation of Indian Textile Industries (Citi) to be held in New Delhi tomorrow. “We have decided to meet on Wednesday to decide the future course of action,” said D K Nair, secretary general, Citi. However, Nair did not confirm about the proposed closure by spinning mills.

(Source: http://www.business-standard.com/india/news/low-cotton-prices-may-hit-yarn-millers-margins/435892/)

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