Countering the Cotton Crisis

Countering the Cotton Crisis

After touching the lifetime high of Rs 110,000 per candy (356 kg) in recent months, cotton prices have started dipping because of the slump in demand. While cotton prices have declined to Rs 80,000-Rs 85,000 per candy, it is likely to dip to Rs 60,000 per candy by December 2022. At the same time, cotton production is expected to increase in the ensuing year (due to large-scale sowing in cotton producing states); thus, further adding pressure on cotton prices.

Price volatility, tight supply, and moderation of demand for textiles in the last 12-14 months have pushed the cotton textile chain to adopt measures to enhance the competitiveness of the sector. With raw material prices coming down, these measures will prove handy. According to ICICI Securities, lower cotton prices would be beneficial for the entire textile value chain and should lead to improved utilisation and better profitability for all players in the cotton textile products. For example, competitiveness of Indian denim exporters (who were finding it difficult to stand against global competitors when raw material prices shoot up from about Rs 50,000 to Rs 1.10 lakha per candy) will now improve significantly following continuous fall in cotton prices.

On the other hand, spinners may not be major gainers (in the immediate future) as prices of cotton yarn are decreasing faster than cotton prices. Also, many companies are burdened with existing raw-material inventories that they had purchased at higher rates. The Union Government’s two and a half month ban on yarn exports also had a disastrous effect on the industry. The spinning industry was forced to deal with the stock made from cotton purchased at a significantly higher price. Experts feel spinners will be able to operate with profitability only after October once fresh stock of cotton will hit the market. (Do read, the “Cover Story” of ITJ Aug 2022 as it explains in detail why predictability in the cotton prices and supply is the key for India to emerge strong in the global textile & apparel market).

Global textile industry is facing a major headwind, as many countries are witnessing high energy costs (because of the Russia-Ukraine war), rising inflation, supply-chain disruptions (because of pandemic-related lockdowns in China), increasing interest rates, etc. However things are expected to improve in the next couple of months as inflationary pressure stabilises and inventories fall.

Decreasing cotton prices coupled with depreciation of the Indian Rupee against US Dollar could prove to be boon for textile exporters. Industry anticipates fresh export orders, especially for fabrics in the next couple of months. The current crisis in Sri Lanka will also see exports orders being diverted from the island Nation to India. In addition, Russia is exploring imports of textile products from India. 

Thus, in the long run, the entire textile industry remains bullish following low raw material cost and better export prospects due to geo-political changes around the world. With festival season beginning in India, the domestic demand is likely to zoom.

Founder & Editor-in-chief
Pratap Padode

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