The prices of cotton yarn have slumped for the first time to the level of clean cotton.
“Normally, the yarn price consists of 65 per cent raw cotton and 35 per cent conversion cost, or 70-72 per cent of clean cotton and 28-30 per cent of processing charges. Since the yarn prices have come almost to the level of clean cotton, fabric manufacturers are unable to recover the conversion cost," said DK Nair, secretary general, Confederation of Indian Textile Industry.
Clean cotton is free of contaminant and is ready to use. As an industry practice, contaminants between six and seven per cent are removed from raw cotton to obtain clean cotton that involves processing.
Even at the current low price, mills are not purchasing in anticipation of a further decline in prices, said Nair.
At present, cotton yarn prices are quoted between Rs 190 and Rs 200 a kg, equivalent to the price of clean cotton. The yarn prices have declined in the past month from a peak of Rs 280 a kg for the benchmark variety, due to higher yarn inventory pile up and limited exports. Cotton prices also have slumped, adding to the woes of these millers. The benchmark Shankar 6 variety cotton has fallen to Rs 47,000 per candy (356 kg) from the peak of Rs 62,000 per candy in April.
But, the sentiment is expected to change in a fortnight when the current yarn inventory, with textile mills will get exhausted. "We are waiting for market to stabilise for fresh purchases of yarn. But, purchases cannot be postponed indefinitely as mills are bound to run their show. Hence, we would enter into aggressive buying by early next month," said Mahesh Poddar, company secretary and spokesperson of Mudra Lifestyle Ltd, a Mumbai-based readymade garments manufacturer with integrated textile mills.
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Yarn prices globally have also subdued with import orders from abroad are currently on a downside.
The plight of yarn exporters' continued despite opening up of the global market for domestic players from April 1, as the government withdrew export incentives such as duty drawback. As a consequence, the domestic market is currently passing through oversupply affecting the overall sentiment negatively.
However, large integrated producers such as Alok Industries face no problem with the volatility in yarn prices. "A majority of our yarn requirement is met through own mills while a marginal quantity is procured from open market. Hence, we are not impacted much with frequent changes in prices," said Sunil Khandelwal, chief financial officer, Alok Industries. “ Both export and domestic demand are good for us. We are able to sell whatever we produce. Hence, we do not see any affect on demand of apparel and home textiles.”