"Chinese demand for Indian yarn witnessed a drop this fiscal. Domestic yarn prices have been falling, too, in sync with a fall in cotton prices," said DK Nair, secretary-general of Confederation of the Indian Textile Industry. "The problem is buyers bargain for a cut in yarn rates in step with the latest cotton prices without realising that the yarn was made of cotton bought in previous months at higher rates. So any price fluctuation hurts," he added.
Cotton prices in Gujarat were ruling at R39,900 per candy of 356 kg as of October 4, down from R42,000 and R42,600 at the start of April and May, respectively. The expectation of a bumper harvest this marketing year that started on October 1, coupled with subdued prices globally, weighed on domestic rates. The Cotton Association of India has forecast India to pip China as the world's largest producer in 2014-15, with output expected to hit 40.73 million bales, marginally higher than last year. However, cotton yarn exports fared better than other textile segments last fiscal.
Industry executives said cotton price volatility in recent months has caught many mills off-guard as they couldn't pass on the rise in raw material costs entirely to buyers. The silver lining is Chinese demand seems to have picked up since September, and mills are betting big on robust domestic consumption in view of the festival and upcoming marriage season.
According to Prem Malik, CITI chairman who has also served at a senior level in companies such as Bombay Dyeing and Mafatlal Industries, the festival season is expected to boost consumption of all textile products, while a pick-up in Chinese purchases, improvement in the US economy and a revival of demand in the EU would help boost exports.