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Spinners selling cotton yarn at below cost rates
15
Jun '11
Owing to sluggish demand, the spinning mills are selling cotton yarn at a price, which is 16 percent lower than the production cost. The yarn prices have plummeted sharply over the past few months.

The yarn that the spinners are selling now, was made from cotton procured by them in February 2011 at a price which ranged between Rs. 55,000-63,000 per candy (1 candy = 356 kg). However, the prices have now plummeted to Rs. 44,000-45,000 per candy.

The average price of the standard 40's combed yarn, which at one point soared to Rs. 240-250 per kg, is now being sold by the spinners for Rs. 200-205 per kg.

Actually, yarn stocks started spiralling last year as exports were capped at 725 million kg. This cap was subsequently hiked to 845 million kg, but still stocks went on compounding. The problem of the spinners became so severe that they opted to go on strike in the last week of May this year.

Yarn exports are capped at 845 million kg for this financial year too, but orders are not pouring in plenty. Normally, domestic orders too, remain dull during this part of the year, as the demand for readymade garments shrinks due to absence of any festive or wedding season.

Generally, the demand for yarn as well as fabrics perks up towards the end of the rainy season. Hence, in order to generate some revenue at the moment, the spinners have no other option but to sell yarn at lower rates.

According to the experts, the small-time spinners are the ones who would suffer the most, as the long-term players have a capacity to withstand a 15-20 percent cut in their profit margins.

While no spinning mill would like to sell off its stocks at low rates, some industry people claim that the situation surfaced due to greediness of the spinners. They argue that if the spinners had released their stock for sale in accordance with demand, rather than holding the same in expectation of further price hike, the situation would have been better.

Experts see the yarn market remaining unstable till September-October, after which there is a possibility of the demand rising once again.

Fibre2fashion News Desk - India

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