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Garment units in a tizzy as cotton prices approach Rs 1 lakh a candy

High cotton rates have denied them export opportunity created by drop in Chinese shipments

cotton yarn, cotton, textile, clothes
Shine JacobSanjeeb Mukherjee Chennai/New Delhi
4 min read Last Updated : Mar 30 2022 | 12:54 AM IST
The volatility in cotton and cotton yarn prices seems to be taking a toll on the garments industry in India, which was gearing up to cash in on exports following the demand dip for Chinese exports, driven by lockdown in China. Prices of Shankar-6 cotton, a benchmark for exports and widely used for variety, are all set to touch Rs 1,00,000 per candy mark now.

The price of Shankar-6 cotton, a benchmark for exports, was quoted at Rs over Rs 90,000 per candy, up 96 per cent compared to around Rs 46,000 per candy in January 2021.

Adding logistics costs to the current pricing would lead to around Rs 100,000-mark, while some grades are already trading at that level.

Industry bodies allege that all the cotton stocks are held by speculators, expecting a higher price which they expect to go beyond Rs 100,000 soon. An increase in the price of cotton by Rs 1,000 per candy would lead to an increase of Rs 4 per kg of yarn.

“Raw cotton prices in India have crossed Rs 90000 a candy, making it 40 per cent above all time high of previous years - it has put the entire industry in turmoil and smaller players are being decimated by this crazy increase,” said Sanjay Kumar Jain of Delhi-based TT Ltd, which has its main manufacturing unit at Tiruppur in Tamil Nadu. Industry bodies are already seeking government intervention.

“In the current cotton season that started from October 2021, the price of cotton almost moved beyond two times of its normal price and the availability of quality cotton is also becoming scarce nowadays. Even when mills are ready to pay the high price, the availability of good quality cotton is not ensured, said K Venkatachalam, chief advisor of Tamil Nadu Spinning Mills Association (Tasma). The association indicated that many mills in the State of Tamilnadu using cotton as raw material, are facing closures, only on the reason of non-availability of cotton this year.

“All official crop estimates show sufficient stock but still artificial shortage has been created to push prices - Government needs to take immediate action against all non-user stockists and ask them to disclose their stock. Exports are freely allowed of cotton, but imports carry 10 per cent plus duty leading to further woes for the industry,” Jain added.

Trade sources said that one reason for the price rise is mismatch between the production estimates of the government and actual crop.

The Centre estimates that cotton production in 2021-22 36.25 million bales. (1 bale =170 kilogram), while traders said that actual production is much less at around 33-34 million bales.

The Cotton Association of India (CAI) expects production to be around 34.8 million bales. The cotton consumption this year is expected to be around 35 million bales, though some traders said it could be around 33.5 million bales.

The consumption is estimated to be around 35 million bales and production at the lower end of the band say around 33.5 million bales. Then the total cotton closing stock at the end of the current season is expected to be around 1.5 million bales, after accounting for 4 million bales of exports.

This level of stocks will be lower than the 4.5 million bales of minimum stock levels required at the end of any cotton season and thus put further pressure on prices.

Globally, too the USDA has lowered the world cotton production and also India’s production estimates in the last few months.

"Till, the last few years, the Cotton Corporation of India (CCI) used to hold atleast some cotton with them but over the last few months they have offloaded their inventory into the market and are now left with almost nothing, which is why also the market is bullish on cotton," a leading global trader said.

But, the more important reason, according to him, is the stagnation in supplies due to little innovation in production since the last few years, rising demand and also global spike in cotton rates due to demand from China.

"As far as allegations of hoarding by traders and others is concerned, I don't think anyone is holding more stocks that what they had with them last year at this point of time, so the allegations seem unfounded," the trader explained.

Topics :cottoncotton yarnGarment sector

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