Cotton yarn exports facing Chinese road block

China's currency has depreciated against the dollar while rupee has appreciated.

Indian textile exports including cotton yarn has started feeling pinch from China. There is two way impact for Indian exporters. Exports of textile in the international market is facing challenge from depreciating Chinese currency at a time when Indian rupee is on an upward move. In that case, buyers are preferring China's products due to price advantage as Chinese buyers have been offering their produce at competitive rates. Direct export of cotton and cotton yarn to China is getting impacted due to change in Chinese policy of selling cotton from reserves at reduced price.

China's currency has depreciated against the dollar while to make matters worse for India, rupee has appreciated. The yuan has depreciated by 2.6% against the dollar since the start of the year calendar year to 6.21 yuan per dollar. While, the rupee has appreciated by 2.7% to Rs 60.09 per dollar.

China, being India's competitor in textile now has an added advantage in terms of pricing as their currency has been depreciating for the last three months. India had a cost advantage compared to China where labour cost is high but now it is getting offset due to the depreciation in the currency, yuan.

Current year's textile exports were on rise as India had gained out of China's rising cost of production resulting in to orders shifting to India. China's textile products were priced higher than India's.

Now, buyers international have now started to negotiate on the price, currently, 30's combed of cotton yarn is priced at $3.60 per kilogram, but buyers are now asking cotton yarn at $ 3.50 per kilogram. China has already cut down their prices to $ 3.50 per kg for 30's count.

China, being a heavy importer of India's cotton yarn has also reduced its imports of cotton yarn from India in the last three months.

"The textile industry has seen an impact as orders have already started to see an impact due to the depreciation in the yuan against the dollar, while the rupee has appreciated," said D K Nair, chairman of confederation of Indian Textile Industries.

Orders also which have been coming in are coming for lower prices, while cotton prices are on the higher side.

"Going ahead, if the rupee keeps appreciating and the yuan keeps depreciating then it will have a bad impact on cotton yarn exports. Indian exporters may start to feel the heat going ahead," said SP Oswal, chairman and MD of Vardhaman Group.

Shankar 6, the benchmark variety of cotton has gone up by 4% since the start of the year to Rs 11754 per quintal.

Directorate General of Foreign Trade so far has only released data till January of cotton yarn exports, which show an increase in cotton yarn exports.

Cotton yarn exports which have been registered till January according to DGFT is 143.81 million kgs compared to 117.14 million kgs in January last year.

Recently International Cotton Advisory Committee (ICAC) said that, uncertainty on how China will handle its large reserves of cotton next season and the significant gap between

polyester and cotton prices does not bode well for cotton consumption in China." This indicates that to save cost, textile players there could increase use of polyester at a time when domestic economy is on a slower track. ICAC said in a statement that, "in 2013-14, the Cotlook A Index (benchmark index for cotton prices) has averaged 90 cents per pound while polyester in China averaged 73. However, in March 2014, the price of polyester in China dropped below 70 cents per pound, to about 66 cents, while the Cotlook A Index has averaged about 97 cents. Given the substantial cost difference, cotton's share of the market is expected to continue its decline this season." This will also pose a challenge for indian exports of cotton and yarn to China.