"Indian exporters are hoping for a revival in cotton yarn exports as Chinese cotton auction started at a 25 per cent premium over the prevailing fibre rate in India. Despite robust demand from Bangladesh, overall cotton yarn exports remained under pressure during the current financial year due to sluggish demand from China. For the April–December 2016, India’s cotton yarn exports slumped by 12 per cent to 872.19 million kg from 987.21 million kg in the corresponding period last year."
Indian exporters are hoping for a revival in cotton yarn exports as Chinese cotton auction started at a 25 per cent premium over the prevailing fibre rate in India. Despite robust demand from Bangladesh, overall cotton yarn exports remained under pressure during the current financial year due to sluggish demand from China. For the April–December 2016, India’s cotton yarn exports slumped by 12 per cent to 872.19 million kg from 987.21 million kg in the corresponding period last year. Cotton yarn exports from India rose by a marginal 4.29 per cent at 1,307.11 million kg for the financial year 2015-16 from 1,253.33 million kg for the previous year.
The first day of Chinese auction quoted cotton prices between Rs 51,000 and Rs 56,000 a candy (356 kg) as against Rs 42,000 a candy currently prevailing in most local markets here. This means, Chinese cotton is costlier by a wide margin. Also, the cotton being auctioned in China is up to seven-year old. By nature, the quality of natural cotton starts deteriorating after two-three years as the fibre starts growing yellow. Still Chinese spinning mills are buying cotton for blending with fresh cotton. But, because of high prices, India tends to gain despite 3.5 per cent levy of duty by China on import from India.
India is competing with Vietnam as China allows zero duty import from there. So, instead of cotton, Chinese textiles mills would move to purchase cotton yarn from India. As Siddhartha Rajagopal, Executive Director, The Cotton Textiles Export Promotion Council (Texprocil) says, “Cotton yarn exports will turn positive this year after a steep decline last year.”
Cotton yarn demand from domestic mills have also revived owing to prices rise by five to seven per cent in the last two-three weeks. Yarn price follows the trend of cotton price movement with a lag of 1-2 months. Today, cotton prices have risen sharply this calendar year with the benchmark Shankar 6 variety hitting to the level of Rs 12,188 a quintal, the highest in five months. Cotton (Shankar 6) price has jumped by over 10 per cent this calendar year. This level of cotton price was earlier seen on October 8, 2016. International price of cotton at 79 $-cents per pound is also all time high.
Yarn demand from overseas buyers remained slow since October price hike in cotton as importers held their orders in anticipation of price fall. But, now they believe that cotton prices are not going to come down. So, they are booking cotton and cotton yarn. The overall demand has revived in the last few weeks, opines Manikam Ramaswami, Chairman & MD, Loyal Textile Mills.
Recent Care Ratings report forecasted India’s cotton yarn output to decline by five to seven per cent to 3,936 million kg for the financial year 2016-17 riding on sluggish demand in past months with substitution taking place from manmade fibre (MMF) as well as distressed direct yarn exports due to lower demand from China. Yarn demand in other export markets will be healthy, the report said. After declining by 10 per cent in 2011-12 cotton yarn production increased by over 14 per cent y-o-y to 3,583 million kg in 2012-13. In 2013-14, production increased by about 10 per cent to 3,928 million kg. High cotton prices and easy availability of MMF at competitive rates led to slower growth of production of cotton yarn. Meanwhile, spinning mills have urged the government to extend 2 per cent tax benefit to yarn sector under Merchandise Exports from India Scheme (MEIS).