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Cotton prices play havoc with Vietnamese textile firms

21
Dec '11
Vietnamese textile firms depending on imported inputs are facing major difficulties due to various factors including volatility in cotton prices, exorbitant interest rates and high inflation rates.

As stated by the Vietnam Cotton Association, the global cotton market is seeing much volatility in cotton prices. Scarcity of cotton coupled with a constant rise in the commodity prices during first three months of the current year compelled textile firms to procure cotton at historic high prices.

While prices soared from US $2 to 5 per kg during the first quarter, it dropped radically during the second quarter. Moreover, as the firms failed to sell the yarn in the period, it had several adverse consequences.

Some of the firms were required to cut production to reduce stockpiling, while some others were forced to breach their contractual commitments, causing them to accept losses which are likely to push these firms to bankruptcy.

Such great volatility did not allow any enterprise to run sustainably without bearing any losses during April to November, when cotton prices plunged from the peak of US $5 per kg.

By the time the cotton which was bought when at its peak was processed, in to yarn, cotton prices has slumped to $2.5 per kg, following which some firms suffered a loss of $1 to 3 billion, while some other fateful firms even suffered a loss of $7 to 8 billion.

It takes around two to two and a half months to ship cotton from East and West Africa and one to one and half month from India and America.

Thus, only those firms, which can well plan in advance their production strategy as well as import requirements, can shun risk. Basically, the firms can mitigate losses only by taking insurance to tackle cotton price volatility, the association concluded by saying.

Fibre2fashion News Desk - India


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