MARKET REPORT
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HIKE IN INDIAN COTTON PRICES TO NEGATIVELY IMPACT EXPORTS AND VIABILITY OF FABRIC AND GARMENTS : A THOUGHT MATRIX MUNISH TYAGI
I
International Textile consultant and Textile Industry thought leader
ndia’s global standing
India is presently the No.1 producer of Cottons, in different varieties, and averaging production of 35 to 33 million Bales per year [ Avg. 170 Kg weight per bale]. The output of the current ongoing Crop 2020-2021 is pegged at 33 Million bales. However, a strange and `unjustifiable ` foreplay has been observed for Indian cottons, with a hike of an average 30% since the first crop deliveries started in Oct. 2020. Despite low ‘pull forward’ demand from Indian or export trade that has been reeling, with much subdued demand during the Covid pandamic period, that is yet on. With reduced overall fabric and apparels exports from India, the one and only tenable reason for the above seem to be depletion of ‘in the pipeline’ stocks in 2020; and increased demand for India s cotton overseas, where the supply chain been drastically disrupted e.g., in China, Pakistan and especially with embargo and sanctions on cotton exports from trouble Xingyiang region in north of China, and the lower price favors Indian cotton at below $0.9/L, today on ICE Cot look at 0.9. This has led to an export of 0.4 Million Bales; and exports can get further boost if Pakistan opens its market for Indian cotton. This too surely will impact Domestic markets. Domestic demand v/s exports Post recovery and growing demand from India s yarn spinning industry. Yarn spinning sector of Indian textiles
industry was one of the first to restart, amid the Covid crisis as soon as August 2020. Its capacity utilization remained a low of 30 to 40% till upto 3rd Quarter of 2020. However, with an `empty Stock in pipeline’, such capacity utilization of the SPG mill industry moved fast to 65 to 75% level by January 2021 to fill in the exhausted stocks. The above spurt in the mill activity of SPG industry, led to quick ongoing consumption of the new Cotton crop that had come into market by Oct. 2020. At the same time, and especially with the spike in export demand from Jan. 2021. The exports of Indian cottons picked up fast and have reached 0.4 Mln Bales, by now. This is surely leading to pressure on domestic supply and stress for mills. Game changer for Indian Cotton sector The real Game changer for India s Cotton industry came as a gift from the National Budget policy on Feb.01, 2021, which `increased` the Import duty on overseas cotton supplies by +5%, making it to 10% on import CIF value. This negatively impacted the imports of cottons especially from Central African countries, and from Uzbekistan which have provided cottons of good quality and at a price lower or competitive to India s best variety Shankar 6, which has now become quite competitive. The impact of this anti-import move made Indian cottons as almost a `monopoly` player in the Domestic Market leading to price increase of S6 popular vari-
ety from INR 42,000 to INR 46,000 per candy [of 355.5Kg] just in 2 months. And the price increase game is continuing. Badly impacted by sudden and erratic rise in cotton prices, majority of the Yarn Spinng Mills infact created the initial much needed demand for cotton; amid Covid period, got worst hit by such rising cotton prices. Most of the mills are now buying only ‘just in time’ and only limited/required volumes. The Spinning mills will be in dire stress if more Cotton is exported out. Further, export target of 0.40 Million bales in current cotton year, and impact of rising domestic cotton prices, is leading to an unfair play for very vital and large spinning mills individually. Call for Ban on yarn exports, to bring down prices of fabrics and garments Apparel exporters in textile clusters in South India have sought the Union government's intervention to check incessant surge in yarn prices, under the discussed impact of rising Cotton prices. Usually, yarn prices increase with increase in cotton prices. However, 'Prices go up by Rs 2 to Rs 5 per kilogram. But, since Dec. 2020, there has been a continuous increase, disproportionate with cotton prices. Since December, the yarn prices got increased by Rs 65 per kilogram; which is expected to go up further, once more of Cottons are withdrawn for increased export targets. Yarn prices have never gone up so steep in the last few decades. This is sure to impact the viabil-
MARCH 2021
