Indian textile industry is worried due to volatility in cotton prices that account for 60 per cent of the cost of yarn for a spinner.
The textile industry is facing its worst ever crisis due to the COVID-19 pandemic and the steep increase in Indian cotton prices has further destabilised the industry and is making exporters uncompetitive.
The recent hike in price of Rs. 3,800/- per candy (355 kg) of cotton in a span of 15 days by Cotton Corporation of India (CCI) and the 10 per cent import duty levied in the Union Budget 2021-22 on cotton have enabled the trade to increase prices abnormally and this trend is continuing. Such steep increases are a severe blow for the entire cotton textile value chain.
Apparel Resources had raised this issue on 24 July.
“CCI has increased the cotton price from Rs. 51,000/- to Rs. 54,800/- per candy of 355 kg since the beginning of July, which has helped fuelling the market. The market price of Gujarat-based Sankar-6 cotton that prevailed at Rs. 43,300/- in January 2021 has increased to Rs. 56,600/- at an increase of over 30 per cent,” said Ashwin Chandran, Chairman, The Southern India Mills’ Association (SIMA).
He further added that the steep increase in cotton prices will not only affect the industry and squeeze margins, but will also lead to higher prices in apparel and textile goods for domestic consumers, who are already burdened by the ill-effects of the COVID-19 pandemic.
There is no parity between the current cotton prices and yarn prices. This will in turn force spinning mills to increase yarn prices to avoid incurring losses.
Notably, CCI had procured over 25 per cent of the Indian cotton crop under Minimum Support Price (MSP) operations. The cost of this procurement would work out to Rs. 43,000 per candy. The current selling price is abnormally high. Even if the carrying costs and reasonable profit margins are taken into account, CCI could have maintained prices at a reasonable level of around Rs. 48,000 per candy to maintain stability.
He added that though CCI offered three months lock-in period for bulk purchase, most of the spinning mills could not derive advantage from this due to the liquidity crunch and uncertainties in prices, while the multinational cotton traders could take full advantage with hedging facilities and cheaper funds. They have purchased the major volume of CCI cotton at lower prices.
As India is poised to record a very high closing stock figure, of 110-120 lakh bales, such a steep increase in the cotton prices was never anticipated. The speculative market has encouraged the ginners and trade to mix inferior cotton and waste with the virgin cotton resulting in high trash content, short fibre content and high contamination, which affect the performance of MSME spinning mills, power looms and handlooms.
Though the Committee on Cotton Production and Consumption in its meeting held on 30 April had estimated 288 lakh bales as the mill consumption and 119 lakh bales as the closing stock for the current cotton season presuming normal functioning of the mills after the first wave of COVID-19, the second wave lockdown restrictions, especially in states like Tamil Nadu, brought the industry to a grinding halt for more than a month and consumption might drop by 15 to 20 lakh bales.