The debt-ridden spinning industry might be able to recover from losses and come out of a loan trap this year if cotton prices remain stable at lower levels.
The Shanker-6 variety of cotton in Gujarat has slipped from Rs 34,000 a candy (356 kg) to Rs 33,300 a candy in the past five days. The price in Punjab, Haryana and Rajasthan has also fallen from Rs 32,700 to Rs 31,780 a candy. This has happened when cotton exports have stopped and yarn export has picked up. Both will help the spinning sector improve their margins.
The finance ministry had recently okayed debt restructuring of Rs 37,000 crore for the textile industry, in the wake of a volatile exchange rate and an unprecedented rise in the price of cotton. According to D K Nair, secretary general of the Confedeartion of Indian Textile Industry, “The softening of cotton prices might help the industry make up the losses and reduce its debt burden.” Senior officials in the Cotton Corporation of India said there would be a further drop in cotton prices after Diwali, as new crop arrivals were expected to pick up. They were prepared to procure the commodity if the prices fell below the notified Minimum Support Price.
The rise in demand for cotton yarn in the global market, particularly from China, coupled with stability of cotton prices at home is leading the spinning sector to expect buoyant business.
J L Sharma, director, Vardhman Textiles, said the sector is better positioned this year, as there is likelihood of lesser volatility in cotton prices. “These fluctuations put pressure on the margins. The sluggish demand of cotton from the export market may ensure ample stock for the spinning sector and the mills would not have to invest in creating huge inventories,” he said. Also, viable prices would help millers cover past losses and facilitate repayment of debt.
According to sources, the cotton stock on October 1 was close to a million bales (a bale is 170 kg). A crop of 33 mn bales is expected and domestic consumption is 24 mn. So, domestic buyers are in a comfortable position.
Ram Bhatnagar, vice-president, emerging markets, Raymond Ltd, said: “The entire value chain in the textile sector rests on cotton prices. If these remain viable, it helps to cater to the consumer in a better way and help producers in keeping the bottom line intact.”