Indian textile exports to China, including cotton yarn, are facing a problem as since January, the rupee has been rising and the yuan falling, eroding India’s earlier cost advantage and giving China’s products a price advantage. Also China has cut direct import of Indian yarn in the past three months.
If the rupee keeps appreciating, and the yuan keeps depreciating, it will have a bad impact on Indian yarn exports. Given the substantial cost difference, cotton’s share of the market is expected to continue its decline this season. India had a cost advantage compared to China, where labor cost is higher. This is getting offset due to the yuan’s slide. And global buyers have started negotiating on prices. For instance, the 30s combed variety of yarn is priced at $3.6 a kg but buyers now want it at $3.5 a kg, the level to which China has cut its price.
The price of Shankar-6, the benchmark variety of cotton, has gone up 4.7 per cent since the start of the year to Rs 11,838 a quintal. Uncertainty on how China will handle its large reserves of cotton next season and the significant gap between polyester and cotton prices does not bode well for cotton consumption in China. To save cost, textile companies there could increase the use of polyester at a time when its domestic economy is on a slower track.