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Movement of yarn prices & cotton costs during 1997-2006
09 Oct '07
3 min read
As far as the economic production of cotton yarn is concerned, the impact of cotton cost is more over-riding than any other single element of cost.
This is because cotton cost accounts for about 60% of the yarn price, ranging from 50% in fine counts such as 80s to 70% in coarse counts like 20s.
With spinning mills earning an average net profit margin (that is, after depreciation and interest) of only 2% of sales during normal trading conditions, changes in cotton cost relative to yarn price play a very crucial role in determining a mill's profits or otherwise.
Using the data furnished by the mills in the last 20 CPQ studies, a detailed analysis was made on the changes in yarn prices and cotton costs during 1997-2006 for some popular counts.
Salient findings of the analysis are given below and the relevant data.
1. During the last 10 year period (1997-2006), domestic cotton yarn prices registered a 11% increase, ie @ 1% increase per year compounded. Export yarn prices, however, recorded a marginal drop of about 3% during this period.
2. Yarn prices – for both domestic and export – fluctuated widely between years, the overall mean deviation being about 4.5%.
3. Cotton cost per kg of yarn recorded an increase of 2% in the domestic yarns but showed about 2% drop in the export yarns.
4. Fluctuations in cotton costs (per kg of yarn) during the 10 year period are very high with an overall mean deviation of about 7.5%.
5. Cotton costs relative to yarn prices registered a significant drop of about 8% in the domestic yarns. In absolute value, the fall amounts to about 5 percentage points which is 2 to 3 times the net profit margin a spinning mill can earn under normal trading conditions. However, the export yarns did not show any change.
This is because cotton cost accounts for about 60% of the yarn price, ranging from 50% in fine counts such as 80s to 70% in coarse counts like 20s.
With spinning mills earning an average net profit margin (that is, after depreciation and interest) of only 2% of sales during normal trading conditions, changes in cotton cost relative to yarn price play a very crucial role in determining a mill's profits or otherwise.
Using the data furnished by the mills in the last 20 CPQ studies, a detailed analysis was made on the changes in yarn prices and cotton costs during 1997-2006 for some popular counts.
Salient findings of the analysis are given below and the relevant data.
1. During the last 10 year period (1997-2006), domestic cotton yarn prices registered a 11% increase, ie @ 1% increase per year compounded. Export yarn prices, however, recorded a marginal drop of about 3% during this period.
2. Yarn prices – for both domestic and export – fluctuated widely between years, the overall mean deviation being about 4.5%.
3. Cotton cost per kg of yarn recorded an increase of 2% in the domestic yarns but showed about 2% drop in the export yarns.
4. Fluctuations in cotton costs (per kg of yarn) during the 10 year period are very high with an overall mean deviation of about 7.5%.
5. Cotton costs relative to yarn prices registered a significant drop of about 8% in the domestic yarns. In absolute value, the fall amounts to about 5 percentage points which is 2 to 3 times the net profit margin a spinning mill can earn under normal trading conditions. However, the export yarns did not show any change.
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