Declining exports of cotton yarn to China have worsened the oversupply situation for Indian spinning mills, who are now looking to domestic demand from the garment sector for relief.

China was a major importer of cotton yarn from India with a share of about 46 per cent of Indian exports of the commodity, but that has declined substantially – to an estimated four per cent in the first three quarters of financial year 2015 – undermining the health of Indian spinning mills. While alternative markets like Bangladesh, Vietnam and Egypt can offer some respite to exporters, their base remains small compared to China.

A mismatch between India’s spinning sector and the fabric sector – yarn manufacturing expanded rapidly in the past few years while fabric manufacturing base remained stagnant – has created a glut in the domestic market making Indian players vulnerable to export demand.

Financial year 2014 was an exceptionally good year for many cotton spinning units in India due to increasing export volumes and steady domestic consumption along with high average sales realisation. However, the decline in export demand mainly from China is likely to result in moderation in their performance during financial year ’15. Further cotton spinning units have suffered inventory losses in the second and third quarters of financial year ’15 on the back of decline in cotton and cotton yarn prices.