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Cotton yarn prices in India to stabilise post March '21

28
Jan '21
Pic: Parikh Mahendra N / Shutterstock.com
Pic: Parikh Mahendra N / Shutterstock.com
Cotton yarn prices in India have been trekking northwards post the strict lockdown restrictions during COVID-led pandemic. However, the textiles industry along with the market participants now keenly look forward to the price outlook. So far, experts' view suggests that domestic cotton/yarn prices are closely tracking global cotton price trends.
 
"Upward price trend in international cotton is underpinning domestic cotton rates. However, if the global prices stabilise post March, as widely believed, yarn prices will ease too," Commodities Control said in its second of the three-part cotton special series report.
 
Cotton yarn prices are seen cooling off, as the mills that were forced to shut during pandemic resume operations, raising production that will ensure smooth supplies, the report added.
 
Market stalwarts observe that a cool-off in cotton/yarn prices is desirable in order to restore equilibrium in downstream industry and to bring various sectors of textiles back in balance. This, they believe, could take around 3-4 months.
 
Economic activity has picked pace after the lockdown restrictions were lifted, due to which robust demand for garments—casuals and knit wear—has been registered from rural India. Increased demand for cotton yarn, while the supply shortage with spinners reducing yarn output, has led to skyrocketing yarn prices, for all the categories.
 
The price per kilogram (kg) of woven cotton yarn increased from ₹193.81 in August last year to ₹267 in January this year—a 37.7 per cent rise. Indian cotton year extends from October to September.
 
The prices in September, October, November and December were ₹205.23, ₹210.45, ₹235.10 and ₹242.22 respectively. The January 2021 price is 10.23 per cent more than the price in the previous month.
 
According to a report by Fibre2Fashion, the sharp rise in cotton yarn prices in the last few weeks is because of dried-up inventories as supplies have failed to match demand and spinning mills resumed operations late across the country.
 
Cotton yarn price has risen because of high domestic and export demand. Huge orders are coming in from Bangladesh and Vietnam.
 
Firmness in the domestic market is attributed to significant price rise in global markets, where ICE cotton futures has surged nearly 20 per cent since December. Strength in global cotton prices is due to anticipation of lower world cotton output and improved stock-usage ratio. This goes to prove that cotton yarn prices will cool off only when cotton prices halt.
 
However, fundamental and technical cues point towards extended price rally, wherein ICE cotton active futures is seen reaching 85 cents/per lb in the near future. While March futures is hovering around 81 cents, May futures has moved past 82 cents per lb. So far, market experts see a strong resistance at 85 cents level from where ICE cotton futures rates are likely to cool off a bit.
 
Cotton yarn industry in the country is trying to get back on track, although the pace is too slow at the moment. Spinning mills were the worst hit amid lack of fiscal support. Most of the mills had to shut down their operations.
 
Yarn output in the country touched early 500 crore kg in the previous financial year. The share of cotton yarn in this was close to 71 per cent. In the current financial year 2020-21, cotton yarn output has declined by 76 per cent, although some improvement was registered post May 2020.
 
Having said so, the annual output was still weaker until August 2020. It is only during September and October that the output witnessed a rise of 3 per cent each. Looking at the bright side, strengthening yarn prices improved the financial status of the spinners.
 
According to Indian Texpreneurs Federation, exports of cotton yarn, fabrics and made-ups during September to December rose from 10 per cent to 19 per cent, on an annual basis. In fact, exports of readymade garments, ever since September, have risen at 13.54 per cent every month. This is likely to shape the direction of yarn prices along with export demand of cotton ahead.
 
Indian cotton, as its prices are lower compared with global prices, has an excellent price parity, due to which exports are seen rising from 50 lakh bales in the previous FY to 60-65 lakh bales this year. Demand for cotton yarn is anticipated to rise in global markets too.
 
Another theory suggests that improved demand from spinning mills can raise domestic consumption too. This also depends on the spread between cotton and cotton yarn prices.
 
Technical charts of cotton on Zhengzhou Commodity Exchange (ZCE) are indicative of rising Chinese demand for Indian cotton yarn in the near future. Price Chart analysis suggests rise after September 2020. The rates rose from 19,000 yuan per tonne to 21,500 yuan per tonne in December. Market spots a resistance at 24,000 yuan per tonne. The spread between Chinese Cotton yarn and Cotton No.1 is expanding rapidly. Historical trend indicates that since mid-2017, the spread has been within the range of 1.3x-1.6x. At the moment, the spread is located near 1.4x, while treading higher.
 
Having said so, the rise in China's yarn prices will underpin price rise in Indian yarn prices and strengthen exports too. However, after it peaks at near 24,000 yuan per tonne, Indian fibre prices will stabilise too. According to SIMA chairman, Ashwin Chandran, "in the backdrop of improved financial status, spinning mills are now likely to focus on raising output along with their expansion plans".
 
Meanwhile NITMA’s Sanjay Garg hopes that "overheated yarn prices should cool off with rising supplies".
 

Source: Commodities Control Bureau

Fibre2Fashion News Desk (RKS)


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