South Asian Textile Industry Grapples With High Price, Short Supply Of Cotton, Yarn

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Chinese Demand For Cotton Yarns Remains Dull

Cotton and cotton yarn prices are rising, creating fresh trouble for textile and apparel exporters from India and the rest of South Asia. The colossal upheaval in the cotton supply chain following the ban on China’s Xinjiang cotton has resulted in a scramble for cotton from other countries, including India. This has resulted in cotton prices moving up significantly over the last few months. Moreover, as businesses restart, fibre consumption has picked up. According to a USDA report, cotton consumption will outstrip production in 2021, thus setting the stage for higher cotton prices.

The silver lining, if we may call it that, is that Indian cotton prices are still lower than international prices, making it the most attractive cotton in the world at present. And thus the demand-supply and price equations come into play, as we are witnessing now. In the last three months, Indian cotton prices have gone up by 10%. Since October, cotton prices are 13-15% higher.

The fallout of this is the upward spiral in cotton yarn prices too. Moreover, recovering demand globally is expected to not only keep India’s cotton yarn prices at these higher levels for some more time, but the yarns will also be in tight supply. In the last three months, cotton yarn prices on average have increased by 10%. Since October, the prices have gone up by 22-30%.

Higher raw material costs are translating to a hike of 10-15% in the cost of the finished product. This is pushing textile and apparel manufacturers to increase prices. Spinners are reporting very good orders, and are unprecedentedly sold out for almost two months.

International cotton prices are much higher
Global cotton prices are seen spiking this marketing season (August 2020-July 2021) in view of production projected at a four-year low, higher imports by China and lower carry forward stocks.

“Cotton prices in New York have increased from around 51.44 cents a pound in June last year to around 89.2 cents by February-end. The rise has come despite the country carrying over record stocks of cotton from last season (October 2019-September 2020),” said Southern India Mills Association (SIMA) Chairman Ashwin Chandran. According to the Cotton Association of India, in India, a record 107.50 lakh bales (of 170 kg) stocks were carried over from last season.

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According to CAI and Gujarat Cotton Trade Association, India’s benchmark Shankar-6 cotton is offered for exports at a little below Rs 48,000 a candy. The rise in cotton prices in international markets could be attributed to increased imports by China, the largest consumer worldwide. This year, China aims to import an additional five lakh bales to take the total to 1,000 lakh bales to tame its local market.

Despite being major cotton producers, China and Pakistan have increased their import targets as the price of cotton manufactured in China is high. On the other hand, Pakistan does not produce the required quantity, hence it plans to import an additional four lakh bales, indicates United States Department of Agriculture (USDA) report. However, Bangladesh may reduce its import by five lakh bales in the cotton marketing year (August to July) of 2020-21 as cotton prices now exceed pre-pandemic levels for factors including a recovery in use by mills, says the USDA report.

Yarn exports are picking up
Besides domestic demand, which has resulted in panic buying, export buying has also pushed up yarn prices. Reportedly, China is buying a good quantity of cotton yarn from India, besides Bangladesh, Peru and Brazil. And the wildly fluctuating prices is causing another problem – exporters are unable to renegotiate for higher prices. Buyers would be happy to shift sourcing for the slightest hike in quotations. According to SIMA, there is a slight drop in prices from the peak seen a few days ago. For example, the 40s count warp yarn topped Rs 300 a kg but has now dropped to Rs 275-285. Hosiery yarn prices are still lower.

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Bangladesh exporters ask spinners to keep prices unchanged for a month
Bangladeshi RMG exporters are asking spinners at home to keep yarn prices unchanged for at least a month to help them to negotiate prices of their goods with global buyers. They also called for a policy to ensure stable yarn prices, to avoid abrupt and frequent price changes. They have urged spinners to inform them about the anticipated change 15 days in advance.

Exporters and trade leaders from the sector made the call amid fluctuation and soaring yarn prices at an extraordinary general meeting (EGM) of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA). The EGM was convened to discuss the ways to come out from the present crisis caused by the pandemic, which pushed the prices of raw materials up and slashed demand of finished goods.

Exporters complained that cotton yarn prices go up by $0.10-$0.20 per kilogram amid negotiations between a buyer and a yarn manufacturer. According to BKMEA data, the prices of most consumed 30s carded yarn rose to US$ 4.81, which was US$ 2.78 last year. As of February 2021, the average prices of yarn went up to US$ 3.77 per kilogram from US$ 2.94 a kg in 2020. The lack of advance notice on soaring prices is forcing Bangladeshi exporters to lose their competitiveness in the global export market, as they find it difficult to fix a deal with buyers within the set prices.

However, textile millers claim that cotton yarn prices increased sharply due to the surge in cotton prices in the global markets. As per BTMA data, per pound cotton cost $0.90 to over a dollar last week, which was $0.56 to $0.65 in 2020. BTMA’s president agreed that there can be a mechanism to set a price keeping a 3% profit based on the index of global cotton prices.

Pak exporters fear losing orders due to cotton crisis
Pakistan’s textile sector has voiced fear of losing export orders due to unavailability of cotton yarn and fluctuations in the rupee-dollar parity. The sector fears a steep decline in exports in the coming months. It is pertinent to mention that in the last six months, the dollar has depreciated against the Pakistani rupee by 5.58% to stand at Rs 157.2 at present, while exporters had negotiated and finalised export orders at Rs 166.5 per dollar, according to industry sources.

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Similarly during the last three months, the price of cotton yarn climbed 15% and still it is not available in the market, they lament. Exporters are reluctant to register new orders because of the severe hike in production costs in Pakistan. Pakistan’s exporters are demanding that the government abolish customs duty on imported cotton yarn. For Pakistan’s industry, the soaring yarn prices, and the non-availability of the raw material, is pushing the SME sector to the brink of collapse.

Prices expected to stabilise in next 2-3 months
Meanwhile, fresh lockdowns in Europe and US has hindered the recovery of South Asia’s apparel business. According to analysts, prices will stabilise in the coming months, as production increases.

However, absolute cotton stocks, as well as cotton stock-to-use ratio, are expected to remain high. According to SIMA, cotton yarn production increased 4% between September to October 2020 and 35% in the seven months of the current financial year. Production is expected to continue rising in the next two-three months, stabilising prices.

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