Yarn prices may rise on export demand surge

The cotton yarn market may see an upward rally if the demand from overseas picks up and the rupee continues to depreciate. Experts, who are bullish of the market in the near future, have adopted a wait-and-watch policy.

July and August are dull months for the yarn market, with the rates looking up thereafter. Market sources said prices, which have hit their lowest since the beginning of the year, would sustain if not rise.

"As the weaving industry is picking up, I think the cotton yarn market should pick up," said K Selvaraju, secretary general, Southern India Mills' Association (SIMA). He added that if the rupee depreciation sustained, the market would strengthen further.

Prices of cotton yarn have fallen by an average 10 per cent (Rs 10-20 a kg) in the last six months. The decline is despite the fact that cotton yarns constitute around 32 per cent of the total cotton textile exports from the country. In 2006-07, cotton yarn exports were worth $1.63 billion, up 11.8 per cent from the figures in 2005-06.

According to A K Agarwal, the executive director of Hyderabad-based Suryajyoti Spinning Mills, demand in the exports market is now slowly picking up and traders expect a bullish trend by September. He said the country now needed good-quality yarn and modernisation of mills and the upcoming facilities were making it happen. He also added that much of the raw cotton was being exported.

The country is expected to produce around 300 lakh bales of cotton in 2007-08, up 10 per cent against the last year's 270 lakh bales. Industry sources said that, on the one hand, raw cotton rates had increased by around 15 per cent and, on the other, cotton yarn prices had dipped.

According to Bharat Malkan, vice-president, Bombay Yarn Merchants' Association, three factors can bring about the rally in the cotton yarn market. "Transformation from synthetic yarns to cotton yarns, exports picking up and reduction in cotton yarn production could stoke some bullish sentiments in the market," he added. The country's overseas market mainly constitutes Europe and the Far East countries.

There are four kinds of cotton yarns "" coarse (20 counts), medium (40 counts), fine (60-80 counts) and superfine (80-120 counts). Currently, yarns of 64 counts are in the range of Rs 825-900 per 5 kg, whereas those of 90 counts are in the spectrum of Rs 875-950 per 10 pounds (4.54 kg).

Normally, by mid-September, cotton yarn exports pick up momentum. The market is anticipating an upside movement by October-November, provided everything else goes smooth.