As domestic cotton prices rise, yarn prices could rule firm

Cotton yarn prices are seen ruling firm in view of a surge in the raw material prices and demand, while its exports could come under pressure in view of a 30 per cent drop in the global apparel market, a top official of one of India’s leading yarn manufacturing firms has said.

“The apparel sector has been affected worldwide due to Covid pandemic. It has resulted in demand for apparels declining. People don’t buy apparels online. They prefer to buy them in person. With shops shut, the sector has been affected,” said Major General O. P. Gulia, Chief Executive Officer (CEO), Shri Vallabh Pittie Ventures Limited (SVP).

In view of this, there would be some effect on yarn exports from India, said the CEO of SPV, the holding firm for Shri Vallabh Pittie Group of Companies. The textile firm exports cotton yarn to Vietnam, Bangladesh, China, Pakistan, Turkey and Portugal.

Contrasting response

His views drew contrasting responses from the industry. “Cotton yarn exports are likely to expand since apparel demand is likely to increase globally,” said Anand Poppat, a Rajkot-based trader of raw cotton, yarn, and spinning waste.

His views are based on the premise that the Covid shutdowns in various countries have ended or are coming to an end that could result in higher demand.

“Yarn exports from India are likely to remain around levels of 80-90 million kgs. If at all there is any increase, it could gain about 10 million kg,” said K Selvaraju, Secretary-General, Southern India Mills Association (SIMA).

Any demand for cotton yarn now would be a short-term gain as was seen last year when China imported cotton yarn from India during the first wave of the Covid pandemic, said the official of SIMA, the apex body of the textile industry in south India, representing the sector’s interest.

India’s cotton yarn exports have averaged at levels of 80-90 million kgs over the last few years. “Even warp yarn prices are up by ₹20-30 a kg recently,” the SIMA Secretary-General said.

Chinese role

In view of the Covid pandemic and China’s role in it come under suspicion, world over a tendency has cropped up to avoid the Communist nation. “So, people are looking at India to fill the vacuum created by China that has a 39 per cent share in the global textiles market. India has a major role to play in the market with a capacity of 29 million spindles,” said Gulia, whose SPV runs a state-of-the-art spinning mill in Rajasthan.

This has helped the industry grow at 11 per cent CAGR recently, he said, adding that this is the primary reason why dometic yarn prices have shot up.

Units resume operations

Besides, cotton prices increasing from around ₹33,000 a candy (356) to over ₹51,000 now have pushed up yarn prices.

“Currently, prices of quality 60 CWC yarn are ruling at ₹445 a kg after increasing to over ₹355 in December from the lows seen during the pandemic last year. Similarly, our 40 CCW and 30 CCW yarns are ruling at ₹345 and ₹305,” said Gulia, whose company has also set up a 150,000 spindles unit in Oman.

Trader Poppat said that yarn prices will likely rule firm since units in places such as Bhiwandi, Malegaon and Ichalkaranji in Maharashtra have begun operations. “Prices will stabilise on the higher side,” he said.

Selvaraju said that the rapid rise in prices of cotton, the primary raw material, in the past year have resulted in yarn prices rising. “Also, the Cotton Corporation of India has only 20-25 lakh bales of cotton (170 kg) of the nearly 140 lakh bales with traders dictating terms,” he said.

Modernisation the key

Gulia said though India had 29 million spindles, many of them were old ones that affected the quality and productivity. “That way, we have state-of-the-art machinery and have expanded over the last five years helping us with a huge advantage over our peers. Others will also have to modernise to take advantage of the emerging situation,” he said.

Modernised yarn units enjoyed an advantage during Covid pandemic since they do not need much manpower, he said.

Gulia said that China was now in the process of upgrading its textile machinery and manufacturing and its old equipment were finding their way to Pakistan. “As regards our firm, we are updating every 2-3 years and hope to have 5.5 lakh spindles capacity by the end of 2022 fiscal,” he said.

Cotton scenario

Cotton prices in India have ruled higher than the minimum support price of ₹5,515 a quintal despite a higher production of 360 lakh bales this year and a record carryforward stocks of 102.95 lakh bales from last season (October 2019-September 2020).

Globally, cotton prices have gained over 10 per cent since the beginning of this year, though they dropped 1.7 per cent over the past month. Currently, cotton futures are ruling at 86.19 a pound (₹49,850 per candy) in New York.

Global cotton prices increased in view of production being projected at a four-year low, higher imports by China and lower carry forward stocks.