AP mills saddled with 75 mkg cotton yarn stocks

Spinning mills in Andhra Pradesh are saddled with unsold stocks of over 75 million kgs of cotton yarn in the wake of tumbling yarn prices, prompting them to cut production by 30 per cent initially in an effort to stabilise the market.

This is part of a nation-wide trend, with over 1,250 mills across the country smarting under an inventory build up of 500 mkg, which accounts for over two months of stocks, with the country's annual cotton yarn production being 3,800 mkg.

“The primary reason for inventory build up is the sudden restriction on export of yarn from mid-January, even while globally the demand and prices were on a firm note,” Mr Ravindra Agarwal, Vice-Chairman of AP Spinning Mills Association (APSMA), told Business Line .

He feels that the cut in production could bring back some stability in the market in the next two months, failing which the industry could consider further cuts.

Most of the 150-odd spinning mills in the State are blaming the Government policy on export of raw cotton and yarn for the glut situation in the market today. At the beginning of the season, there was unrestricted raw cotton export, which pushed up prices to an all-time high of Rs 64,000/candy a few months ago. However, since the beginning of last month, prices began to slide, dropping to Rs 42,000/candy in the last 20 days.

“The Government had restricted cotton yarn exports to 720 mkg, but this quantity was almost completely utilised by the end of November, leaving a meagre balance quantity to be utilised by a very small section of spinning mills across the country up to January 15, 2011. The sudden restriction of cotton yarn exports when globally demand and prices were ruling at an all-time high led to the piling up of stocks in the domestic market,” Mr R.K. Agarwal, honorary chairman of the association, said.

After April 1, when yarn exports were allowed, global demand and prices fell by almost 25 per cent. “Today, we are in no position to add to our existing stocks due to space and working capital requirements,” he says.

To add to the woes of the industry, domestic traders increased import of polyester and blended yarn from China at low prices, prompting the industry to seek anti-dumping duty on Chinese yarn imports. The industry is also seeking restoration of DEPB facility on cotton yarn export and extension of the scheme beyond June 30, 2011.