Export price of cotton yarn nosedived by $1-2 a kg within the last one month. As Indias cotton yarns entered the international market, prices have crashed. The government restricted cotton yarn export to 720 million kg for 2010-11 based on an unsubstantiated complaint made by cotton yarn users of high prices and low availability.
Consequently, there was no export of cotton yarn for over two-and-a-half months from January 15 to March 31, 2011. This led to a huge stock of unsold cotton yarn with the mills, said Shishir Jaipuria, president, Confederation of Indian Textile Industry (CITI). The cotton yarn exports during the last five weeks was less than 50 million kg as against 70-75 million kg per month last year before the curb was imposed, said Jaipuria.
When FE spoke to major textile associations of India like Southern India Mills Association (SIMA), North India Textile Mill Association, Tamil Nadu Spinning Mills Association, Andhra Pradesh Spinning Mills Association, they have been unanimously saying that wrong policies too caused the export slump, in addition to the demand crunch in overseas markets. Post withdrawal of restrictions exports have been very tardy since absence of shipments from India prompted several regular importers to resort to other sources to meet their requirements.
According to DK Nair, secretary-general, CITI, Buyers also feel that prices will soften further as more yarn has become available in the market. Orders have not flowed in as expected. Pakistans cotton yarns were already more competitive than Indias. Some Indian spinners have large inventories and offer heavy discounts to clear inventories. Even as cotton prices have come down by 20% in May, the inventories were produced using higher-priced fibres and Indian spinners are selling at low levels is eroding margins.
Stating that the spinning mills stock touched 500 million kgs, Jaipuria observed that this has completely eaten into their working capital. Faced with cash losses and negligible working capital, mills are finding it impossible to buy cotton and this has resulted in a decline in cotton prices in the market. However, he added that decline in cotton prices is no indication of adequate availability.
The spinning mills in protest would remain shut on May 23 and will cut down production by 33.3%. It has also been decided that a review meeting will be called in the first week of June to take stock of the position to chalk out further action.
Associations demanded measures to check current crisis including rollback of the duty entitlement passbook scheme (DEPB).
They also demanded that the government should withdraw the excise duty of 10.30% which was imposed on manufacture of garments till the GST is introduced.
There is also a need in providing 2% interest subvention for all textile and clothing products excluding fibres.