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Cotton – Challenging times
19th March 2012
Despite some revival observed in the second half, cotton yarn exports from the country are likely to decline by about 20 per cent during the current fiscal to about $2.31 billion, as against $2.72 billion in FY11.
According to the data released by the Directorate General of Foreign Trade, for the nine-month period ended December 2012, the exports of cotton yarn have decreased by 20.7 per cent to $1.49 billion as against $1.88 in the corresponding period last year. However, in terms of volume, the exports have witnessed a growth of over 21 per cent and the same momentum is likely to continue for the full year. China, Bangladesh,
Sri Lanka, Vietnam and Egypt have emerged as the major importing countries, even as the demand in the EU markets remained sluggish. “The condition was sluggish initially, but things have improved lately in the wake of demand revival in the importing countries. However, in value terms, we are still likely to see a fall of at least 20 per cent; though, in terms of volume, there is improvement,” says Siddhartha Rajagopal, executive director, Cotton Textiles Export Promotion Council (Texprocil).
“Despite all sort of constraints, the industry has tried its best. As compared to last year’s shipment of 700 million kg of cotton yarn, this fiscal year, we are likely to touch a figure of over 850 million kg,” states B.K. Patodia, managing director, GTN group, which exports cotton yarn worth NOO crore (out of its total turnover of 750 rupee crore).
Ups and downs. Cotton yarn exports have witnessed a fluctuating trend in the last few years. The shipment volume had gained by 7 per cent to 664 million kg in FY08, only to decline sharply by 16 per cent to 555 million kg in FY09. Then, it again gained marginally by about 6 per cent to 589 million kg in FY10. “There was a marked improvement after the removal of textile quota in 2005, but the global financial crisis went on to negate the entire gains. In fact, we have observed a great deal of diversion of cotton yarn production to the domestic market from the export market by mills as part of a changed strategy,” says D.K. Nair, secretary general, Confederation Indian Textile Industry (CITI).
But the last couple years, in particular, say industry observers, have been quite challenging for the Indian cotton yarn spinning sec tor, which exports 20-25 per cent of its total production (about 3,500 million), holding no: 3 position in the world market after China and Pakistan. In the last financial year, when the raw cotton prices in the domestic Cotton yam: fluctuating trend market more than doubled to over 60,000 rupee per candy (of 356 kg) in a short span of six-seven months, forcing the government to take some ad hoc measures. Among them, was imposing a ceiling of 720 million kg on exports of cotton yarn for FY11, on complaints made by cotton yarn users of high prices and low availability. Consequently, there was no export of cotton yarn for over two and a half months from 15 January to 31 March 2011.
This resulted into a huge stock of unsold cotton yarn lying with the mills, which continued to produce yarn using high-cost cotton in anticipation of strong realisations (as against which the demand only moderated) in the global markets after the removal of export restriction. The pile-up of inventory was also due to the sluggish demand in the domestic market, following the closure of dyeing units in Tirupur, a leading hub for hosiery exports, as well as levy of 10 per cent excise duty on branded garments. Meanwhile, the cotton prices also tumbled to around 30,000 rupee per candy by Q1 FY12 in anticipation of bumper crop. This adversely impacted the cotton yarn prices. All this led to a precarious situation for the spinning mills, which saw their margins squeezed considerably. In fact, spinners were forced to sell cotton yarn below the production cost as they had to get rid of the high-cost inventory they were stuck with.
“The highly-leveraged capital structure, along with rising interest rates, exposed the industry to higher risk of defaults. The industry has already made a detailed presentation with the finance ministry for the restructuring of debts,” states Nair.
“Though the condition has looked up on the demand side (both on the exports and domestic front), the margins are still not good enough to take care of the repayment of debts. We are currently struggling to meet OUI working capital needs. Besides, we have to make up for the losses that we incurred in the last few quarters,” says Patodia, who expects FY13 to be a better year for the Indian cotton yarn industry, as both export and domestic markets are on the recovery path.
Meanwhile, the raw cotton production has kept its pace. After a bumper crop of 32.5 million bales of 170 kg each in the 2010-11 cotton season, the domestic cotton crop size is estimated to be around 34.5 million kg for the current season. Despite this, the cotton prices in the last couple of months have seen some degree of firmness. The price of cotton (Shankar -6 variety) is currently quoting at about 35,000 rupee per candy, as against 31,000 rupee in December 2011.
Gupta, A. 2012, March 4th. Challenging times. Business India. Page 28-29.
Cotton export ban goes
14th March 2012
NEW DELHI (Reuters) – India will lift a controversial ban on cotton exports just a week after imposing it, allowing more supplies into a global market that is oversupplied and which is likely to further push down international prices.
Sources in the government indicated that the ban revocation would come with some riders, and the guidelines accompanying the revocation are likely to be announced after a meeting of the Group of Ministers scheduled for March 23rd.
The ban, announced unexpectedly on March 5th, after a record 9.5 million bales had been shipped, ran into criticism from the influential farm minister, Sharad Pawar, and China, the biggest buyer of cotton from the world’s second-largest producer. Government ministers had taken into account the interests of farmers, industry and trade in deciding to lift the ban, a statement quoting Trade Minister Anand Sharma said on Sunday.
New York cotton futures, which had ended limit up on Monday when the ban was announced, closed lower on Friday after USDA estimated higher production worldwide. The May ICE futures contract closed down 0.76 cent to 88.80 cents per lb.
Joshy Michael K, Vision Support Services India has commented on this issue saying:
“This is a political stunt, because in effect the ban is revoked only for contracts which are already registered but not shipped. These contracts will be scrutinised and then only will be cleared for effecting shipments. Most likely new contracts are not going to be allowed.
There are lot of discussions and accusations going on about this topic and we will get a correct picture only after one or two weeks. I shall keep you updated with further developments.”
Lissadell Liddell Expo Highlights
28th February 2012
The Lissadell Liddell Expo took place at The Dorchester Hotel, London. Whether you were able to attend or not, take a quick look at some of the highlights from the event with our short video montage.
Click here to view
A Titanic year for Lissadell Liddell
23rd January 2012
Dundalk-based Lissadell Liddell Ireland, which provided the linens for the Titanic’s ill-fated voyage in 1912, is benefiting from a “snob appeal” in the Middle East, accelerating exports, its commercial director told Insider.
Monarch-Cypress Signs Agreement with Lissadell Liddell
6th January 2012
Leading hotel bathrobe and towel company becomes exclusive supplier of the luxurious Liddell Collection of Irish bed linens to upscale properties in the U.S. and Canada…
Raw Cotton and Yarn Prices Fall
1st June 2011
Raw cotton and cotton yarn prices had a steep fall in April. Raw cotton prices fell by almost 15 to 20% during the month. The season is coming to an end and most of the crop has arrived in the market. At present, there is lacklustre demand and arrival of low quality cotton at the end of the season led to the decline in prices. Even stockists have started offloading cotton in the market expecting further fall. Yarn prices fell by almost 10 to 15% in April during the same period. Further drops are expected by early May, as traditionally Indian spinners change their price lists by beginning of every month. At the same time, agricultural farmers are lobbying hard to allow further export of raw cotton from the country. Government had decided not to relax ban on cotton exports which caused sudden fall in cotton prices. If this situation continues, there may be more price correction in coming weeks. Early reports indicate an increase in cotton cultivation area for the next season to the tune of around 10%.