The spinning industry has begun its hue and cry over the "flare-up in cotton prices at the beginning of the season." Cotton lint prices across the country registered new highs during the first fortnight of November. Are cotton prices heading northwards putting mills in grave danger? The Southern India Mills Association (Sima) on Thursday sought an immediate waiver of the 5.50 per cent import duty on cotton with the twin objective of arresting the shoot-up in domestic prices and enabling mills to import the commodity freely.

However, if one goes by the past statistics, the current price levels at the beginning of the cotton season is nothing new for the industry. Prices of popular cotton varieties like J-34, LRA-5166 and MCU-5 were ruling higher during the November-December period in 1998. The much sought after long staple DCH-32 has for the last one year been demanding a higher price following short supply of quality lots.

It may be noted that the previous flare-up in 1998 was soon followed by the government announcing a 5.5 per cent import duty on the commodity. However, the industry had no reason to complain then as most mills were busy shipping to the lucrative export markets. Exports, especially to some of the Asian markets, saw the industry tide over the crisis and this was soon to be followed by lower cotton prices towards the end of 1999 calendar. In fact, cotton imports into the country touched an all time high of 19 lakh bales (of 170 kg each) in the last season even with 5.5 per cent duty.

It is true that domestic cotton prices are moving up this year compared to the previous season. But one should also note that the upward movement is in line with the trend witnessed in international markets. The International Cotton Advisory Committee (ICAC) had warned of an increase in international cotton prices. The Cotlook A index, which was about 0.40 euros per pound in October '99, moved up by 80 per cent to close at 0.72 euros per pound in October 2000.

The ICAC estimated the total world production of cotton at 19 million tonne in 2000-'01, but warned of a new record of over 20 million tonne in consumption. ``Higher cotton consumption is the result of relatively higher chemical fibre prices and faster economic growth in most parts of the world.

International cotton prices have increased more in terms of euros,'' the Committee said. The agency expects world ending stocks to be down by 1.10 million tonne in 2000-'01 and that the prices of the commodity will continue the upward trend to average 74 cents per pound in 2001-'02.

``The current levels are not alarming and we expect the domestic prices to come down. But the international trend (higher prices) could also lead to hoarding in the country which could see the commodity's prices sky-rocket in the coming weeks.

If the customs duty on cotton imports is abolished we will have an alternate option to exercise in case of exigencies. Only the quality conscious will import cotton during the year,'' said a senior official of a spinning major here.

The industry's worry also stems from the likely drop in cotton production in the country during the current season.

Moreover, there is resistance at higher levels of cotton yarn exports. The spinning mills, it seems, would be finally required to look beyond mere government sops and cheap raw material prices to improve bottomline.