The year 2015 failed to bring cheer for cotton spinning mills. Yarn prices remained sticky through the year, after tumbling 8-15% from January 2014, across various grades. The festive season, when demand normally inches up, was lacklustre too. Add to this, mills in the south that spin almost half the yarn in the country were affected by heavy rains in Tamil Nadu over the last six weeks that hampered trade and logistics.
These were the domestic woes. The scene has not been rosy on the export front too. Prerana Desai, vice-president (research) at Edelweiss Agri-services and credit, points out that weekly exports in the fourth week of November recovered from the lows recorded in the previous week at 15.4 million kg. But exports slumped back in the first week of December, as exports to the top four destinations—China, Bangladesh, Egypt and the US—were anaemic.
Overcapacity is the biggest problem. Mills were burdened with high inventory after spinning mills added capacity since 2012.
Simultaneously, China’s demand for Indian yarn reduced as Chinese buyers shifted to imports from Vietnam and Indonesia. According to Southern India Mills’ Association, Vietnam’s trade in international markets has risen by 29% so far in 2015 and Indonesia’s by 10% at a time when India’s fell by about 14%.
The only silver lining is that cotton prices both internationally and in local markets are subdued. This would ease the pressure on margins.
Meanwhile, in the entire gamut of cotton textiles, apparel sales have improved, which over a longer term may help yarn demand in domestic markets. This explains why the stock prices of select integrated mills have run-up.
Further, given the high inventory since June, some mills have cut back production, which should bring down surplus stock and carrying costs for mills.
The game changer for mills will be heightened demand for yarn in global markets that will improve pricing power and profitability.
