Rise in cotton prices this year has caught off guard Cotton Spinning industry with low cotton stocks as domestic output is set to decline double digit in season 2015-16.

The industry is suspecting heavy squeeze in margins as demand-supply imbalance is stoking cotton imports and new crop arrival is delayed due to late sowing of cotton.

"High off-mark cotton crop estimates has put industry in a precarious situation as most spinners are likely to run dry of raw material before the new crop arrival," says Sanjay Jain, Northern India Textile Mills' Association (NITMA), VP, Senior Vice president.

"The cotton demand supply imbalance is likely to prolong till beginning of November due to late sowing owing to delayed rain this year," he said.

He sought a reliable mechanism to provide estimates on output, crop arrival and expected yield to evade such a situation in future.

"Prices are up 30% up in spot markets and likely to further increase due to demand and supply imbalance," he said. The spinning industry is in dire need of fiscal incentives, he said.

 

India exported over two-million bales in the last year to Pakistan in October, November and December due to low prices prevailing at the time.

Now, shoe is on the other foot. As the demand supply imbalance has fuelled cotton contracts for imports from Australia, Brazil, Pakistan, West Africa and the US, he said.

"Most firms are not in a position to enter import contracts as shipments will be delayed and prices are on rise," he said.

"The country could end up importing over 2-million bales to bail over the situation," says Rakesh Rathi, president Indian Cotton Association Limited.

"Imports will bailout industry along coastal areas but land locked industry in North will be dependent on supply from central states," he said. The Association has sought incentives to bailout the industry.

The cotton output in domestic market is expected to fall by 15% for season 2015-16 after preliminary estimates pegged it at 38.4 million bales.

"It is unlikely that output will cross 325 lakh bales this year," says Jain blaming initial cotton output estimates for the situation.

"Cash rich firms that have adequate stock are in advantage while most of the industry is caught in a muddle," he said.

In last few years Cotton processing industry largely maintains stocks for three months while small players rely on weekly for fortnight purchase to evade brunt of volatility in prices of cotton.

"The yarn manufacturers are likely to worst affected as moderate demand has left little scope for rise in price of products," he said.

"Contracts for cotton imports are on rise as stock situation is set to tighten in coming months," he said.

"Now, it is entirely a traders market as most are likely to hold cotton stocks to allow further price rise," Jain said.

Source:economictimes.indiatimes.com