On the back of sustained buying of cotton by domestic textile mills to tap the rising demand in the export market, consumption by mills is likely to rise by 8.3 per cent. Industry players estimate mill consumption of cotton may increase to 26 million bales in the current cotton year (October-September) from 24 million bales last year. This estimate includes consumption by mills as well as small scale units.
Textile mills, especially from northern parts of the country, are on a buying spree. Sample this, out of the daily arrival of 65,000 bales in Gujarat, mills buy around 40,000 to 50,000 bales a day.
“Despite the fact that cotton prices are ruling higher, domestic mills have so far purchased 6 million bales across the country,” said Arun Dalal, owner of Arun Dalal & Co, an Ahmedabad-based leading cotton trading firm. The demand for yarn and cloth as well as garments in the export market is good, which has prompted domestic mills to corner cotton stocks.
Though the domestic prices of the commodity are ruling higher, mills have continued to purchase cotton as yarn prices had surged 35 per cent in first half of 2009. In addition to this, Indian cotton is still cheaper in the international market. Currently, the cotton produced in India is quoted at around 73 to 74 cents per pound, while cotton from other exporting countries is quoted at 76 cents per pound. It may be mentioned here that domestic mills had to import cotton last year in the wake of higher cotton prices in local markets.
This gives an edge to Indian mills over their counterparts in other exporting countries such as China, the US and the far East. “Despite higher input cost, domestic mills are able to sell their products in the export market and earn profits,” said Kishor Shah of Central Gujarat Cotton Dealers Association (CGCDA).
Countries like China, Pakistan and Bangladesh, which export yarn, cloth and garment, are faced with a lower supply of cotton. As a result, Indian textile mills are getting good business opportunities in the international market.
Capacity expansion by textile mills would also contribute to further rise in mill consumption. “Many textile mills in south India have come up with new units. Apart from this, there is no dearth of spinning capacity in the country to meet the rise in demand,” Shah added.