Business Standard

Spinners sell cotton yarn below cost

Image

Sharleen D'Souza Mumbai

Spinning mills are selling cotton yarn at a discount, 16 per cent below production cost, due to weak demand. The price of yarn has fallen sharply in recent months.

Stocks have been spiralling since last year, when yarn exports were capped at 725 million kg, although later raised to 845 million kg. The spinners’ problem was so acute that they went on strike in the first week of May, added to the stocks.

The yarn being sold now was procured when cotton prices were between Rs 55,000 and Rs 63,000 a candy (356 kg) in February (they’re now Rs 44,000-45,000 a candy). The average cost of output of the benchmark, 40’s combed variety of yarn, went up to Rs 240- 250 per kg. Spinning mills are now ready to sell at Rs 200-205 per kg.

 

This financial year, although the government has capped yarn exports at 845 million kg, orders remain slack.

Also, during this time of the year, orders are usually dull, as there is little retail demand for readymade garments, since there is no festive or wedding season. Demand for both yarn and fabric will pick up only towards the end of the monsoon season.

“Spinners are now left with no option but to sell yarn at lower prices, as some inflow of money is required,” said D K Nair, secretary-general of the Confederation of Indian Textile Industries.

The ones which will suffer are small-time spinners, as the big players are in a position to take a 15-20 per cent hit in their margins, said Mitesh Shah of Mandhana Industries.

While selling huge stock at a discount will not go down well with any producer, some say that it was the greed of spinners that led to this situation. If they would have sold the stick as and when produced there was demand, the situation would have been better now.

Rahul Mehta, president of the Clothing Manufacturers Association of India, said, “Spinners created this crisis for themselves as they were holding back their stocks instead of selling in the hope for a further prices rise.” He sees the yarn market to remain unsteady till September-October, after which the demand may revive.

Don't miss the most important news and views of the day. Get them on our Telegram channel

First Published: Jun 14 2011 | 12:38 AM IST

Explore News