Fundamentally, our economy is weak. The government has opened the entire economy to help spur it up. But consumption, however rising, is still far away from the pre-Covid. Buying is still need-based, not for fun. Many companies have slashed salaries while millions have also lost jobs. The impact of this has been hard on the huge middle-class population in India.
The middle class and lower class account for 58% of the total number of households in India and their share in consumer spending is as high as 70%. The distress due to job losses and migration to rural areas has led to urban demand being slightly more challenged. I think the worst is over, but the speed of recovery will be a crucial factor. Some experts in the USA have suggested the US government should give every household a $1,000 stimulus cheque every 2 weeks that expires if it’s not spent within 10 days.
Highly doubt this method will seriously be implemented but this is an indicator that our country also needs an action plan to increase consumption. Discretionary spends on apparel are slowly limping back to normal, however, it is still not delivering growth. So, the focus is on essential categories of daily consumption.
Fine counts are on fire
Two sectors are majorly driving the cotton yarn market: Bed linens and knitwear. Healthy demand for knitted garments in the domestic and overseas markets and bedsheets from overseas markets is helping the domestic manufacturing industry stand up on its feet after the struggling phase. Major home textile players such as Indocount, Welspun, GHCL etc have been very active in the yarn markets. Entire capacities of some prominent spinning mills have been occupied by the big bedsheet brands.
Since spinners are anyway struggling to achieve full capacity utilization due to labour unavailability, severe shortages have been felt in the fine-count segments. Expect the surge in 60s and 80s compact yarn to last for the whole of October. With majority of the mills booked, prices will not dip anytime soon.
Organic is worth gold
Shortage of organic has helped push prices further up. Any fabrics manufacturer who didn’t cover organic yarn in time is forking out 4x the up-charge for organic. The up-charge for organic yarn is trending at Rs 25-30 per kg. It promises to move higher until new organic cotton is available by the end of October. Somewhere, surge is demand for organic has help even regular yarn to be priced higher.
- 40s cotton combed compact weaving yarn: Rs 220-222 ex-factory
- 60s cotton combed compact weaving yarn: Rs 285-288 ex-factory
- 80s cotton combed compact weaving yarn: Rs 390-400 ex-factory
- 30s cotton combed compact knitting yarn: Rs 192-194 ex-factory
- 40s cotton combed compact knitting yarn: Rs 213-215 ex-factory
- 32s cotton carded weaving yarn: Rs 172-174 ex-factory
- 40s cotton carded weaving yarn: Rs 193-195 ex-factory
- 30s poly-cotton knitting yarn (40:60): Rs 168-170 ex-factory
- 30s poly-cotton knitting yarn (48:52): Rs 160-172 ex-factory
- 10s open end yarn: Rs 115 ex-factory
- 16s open end yarn: Rs 128 ex-factory
- 30s viscose weaving yarn: Rs 153-154 ex-factory
- 40s viscose weaving yarn: Rs 185-186 ex-factory
*Source: YarnLIVE Mobile App
The prices that prevailed immediately after unlock will probably never be seen again. It would be wishful to think that markets will slump again. We might see corrections due to supply and demand issues but expect prices to hover on the higher side this month. However, once the new crop arrives from Dussehra onwards, prices might have a downward pressure. Will have to wait and see if the MSP effect causes prices to increase or the abundance of cotton pulls the prices down. After all, never has India seen closing stock of a 100 lakh bales on 30th September.
(Deepak Periwal is Founder & CEO, YarnLIVE)