The textile industry in India, riding a wave till March, has plunged into disarray. The value chain is topsy-turvy, as cotton prices have dwindled, affecting yarn prices and slackening the demand from fabric manufacturers.
Cotton prices were Rs 62,000 per candy (356 kg) in the beginning of April and have tumbled to Rs 50,000 per candy. A senior member of the Northern India Textile Millers Association and Director of Winsome Textiles, Ashish Bagrodia, said the price of cotton yarn a month before was Rs 260-265 a kg of the 30s comb, the benchmark variety. “It is now Rs 225 a kg. To cover our costs, we need to sell at least at Rs 245 a kg,” he said.
S P Oswal, chairman of the Oswal Group, said the two and a half months freeze on export of yarn by the Union government had played havoc with the sector. The spinning industry, he said, was saddled with the stock prepared from cotton bought at a considerably higher price.
During the export ban on yarn, competitors such as Turkey and Pakistan and, to some extent, China revised the price and minted money.
When the government lifted the ban on April 1, Indian spinners offered huge stocks to foreign buyers. Sensing the accumulated stocks, the buyers negotiated for lower prices. This, coupled with expectation of a huge cotton crop in September, ripened speculation on a further dip in prices and fabric manufacturers deferred their demand. The price abroad of yarn, from a range of $6.25-6.4 a kg of 30s comb had crashed to $5 and a price erosion to this extent cannot be absorbed by the industry so soon, he added.
At present, the Indian spinning industry, say observers, is sitting on a yarn stock of roughly 440 million kg of inventory; the normal level is 150 million kg. All the speculation on further sinking of price restrained domestic fabric buyers. Against the average monthly offtake of 170 million kg, the domestic offtake of yarn was 120 million kg in April. 2011.
D K Nair, secretary-general of the Confederation of Indian Textile Industry (Citi) says help is needed. “The fixed cost in terms of borrowing and debt re-service is a major cost component and the inventories are eating into working capital of the factories. We are having internal rounds of discussions at Citi to find ways and means to come out of this quagmire,” Nair said.
Citi has written to the revenue secretary in the Union ministry of finance to restore the duty drawback on export of yarn that was withdrawn in April last year. “It may be a drop in the ocean but every single drop matters at this juncture,” says Nair.
