Worries loom over cotton spinning mills as multiple global factors play out to influence the demand for and the price of yarn as well as that of cotton. So far, in the last four-six quarters, it was a stable ride up the profitability graph for yarn mills. Demand for yarn was moderate and cotton prices were stable.
The biggest problem is the recent and sudden spurt in cotton prices, which is higher than that of yarn. The price of the benchmark Sankar-6 variety of cotton has jumped by 19 per cent, whereas that of 30s-count yarn is up 11 per cent (inclusive of duties) since January.
The mills, especially the mid- and small-sized units, will take a beating on margins if the trend continues. The larger mills are tiding over the problem through imports. According to K Selvaraju, secretary general of the Southern India Mills’ Association (SIMA), large mills have started buying West African cotton as costs are lower. At current price levels, imported cotton works out cheaper by Rs 2,000 per candy of 355kg. Experts say that the cotton imports for the season will surpass projections.
Some say that the acreage under cotton cultivation is down, after two seasons of deficit rainfall as the reason for domestic cotton prices ruling high. So, cotton production is likely to fall to a five-year low of 35.2 million bales (a bale is 217.7kg) for the 2015-16 season ending September, or perhaps even lower.
