Availability of cotton and cotton yarn

22 Nov '10

5 min read

There has been unprecedented increase in cotton prices in India during the last few months. From Rs.23000 a candy in October 2009, cotton prices increased to Rs.47000 earlier this month and have remained around Rs.45000 thereafter. Allowing exports from 1st November 2010 is taking away for exports a substantial portion of the crop that is arriving in the market, creating an artificial shortage. Registration of cotton export contracts was opened on 1st October 2010, and the entire quantity of 5.5 million bales earmarked for registration got applied for in 10 days.

Most of the registration was on Cash Against Documents (CAD) basis, for which no documents other than a contract was necessary. The speculative nature of contract registration is evident from the fact that nearly 1.5 million bales got registered on a Sunday. At present, there is hardly any cotton available in the market for the domestic mills to buy. The situation can improve only if exports are postponed to the extent possible at this stage.

The Cotton Yarn Advisory Board (CYAB) established by Government has assessed cotton yarn production during the year at 3370 million kgs. The consumption and export demand, together has been assessed at 3376 million kgs and the ending stock of 84 million kg is more or less at par with the opening stock of 85 million kgs., during the beginning of the year.

Thus, production and domestic availability of cotton yarn in the country are at an all time high record and export as a percentage of production is comparable with the previous years, excluding the two years of global slowdown. With garment exports stagnating or declining, domestic consumption of yarn cannot be expected to grow this year. The recent reports on alleged non-availability of cotton yarn in the domestic market are obviously not substantiated by data.

Cotton yarn prices have increased substantially during recent months as a direct consequence of the increase in cotton prices. However, the spinning industry in India has been supplying yarn to the domestic industry at prices lower than what they are realizing from export markets and the importers also incur additional costs on freight, insurance etc. If countries that import Indian yarn at higher cost are able to increase their garment exports and our garment industry is not, there should be reasons other than yarn prices for this and both the industry and government need to address these.

It is necessary to ensure that all the segments of the textile and clothing industry are allowed to function on the basis of their core competence. Spinning and processing are the most capital intensive sub-sectors of the textile and clothing industry. Huge investments have been made by these segments by using the TUFS. Their ability to repay these loans depends on their making reasonable profits. At the current cotton cost, they cannot make much profit.

Any measures to interfere with the efforts ofthese segments to pass on raw material costs to the next stage or to prevent their export activities will have adverse consequences on the ability of the units to repay loans. These would also impact modernisation and expansion of capacity in existing units as well as new investments for capacity building. This situation will only lead to long-term shortage of yarn and fabrics in the market, which will not be in the interests of either these segments or the down stream value added segments.

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