Mumbai (Commodities Control) - In the last one year, yarn and cotton prices have shot through the roof. As per various associations of hosiery manufacturers, the price of high grade yarn has increased from Rs 200-210 per kilo in November-December 2020 to about Rs 300-320 per kg currently.
Industry reveals that a shortage of availability of yarn, a key raw material in the manufacturing of garments, especially knitwear and hosiery, has resulted in prices of yarn shooting up by nearly 50 percent in the past four months. This has wreaked havoc not just for garment manufacturers in this cluster, but across the country.
Thanks to the rising global cotton rates that underpinned yarn prices. ICE cotton futures rose from sub-51 cents during April 2020 to over 95 cents last month. Although cotton prices have cooled to 85 cents, they continue to be at elevated levels as compared with prior years. This has increased the input costs manifold leading to reduced demand for garments/textiles, while hosiery is forced to pass on the increased rates to cater to the consistent demand.
Maharashtra-based Santosh Jhawar, Director - Purna Global Textile Park notes, “ There are barely any new orders for garments, wovens like trousers and shirts, due to exorbitant rise in yarn prices. Pre-covid, we received 100 piece/day orders which have reduced to mere 40%.”
Covid-restrictions and closure of malls and public places did impact the demand from textiles. This side of pandemic impact may not justify the price rally in yarn, but it does in case of hosiery-- another category of this massive industry.
“The rising yarn prices are impacting the production capacity of MSMEs where there is a dearth of hard capital. They are finding themselves in deeper trouble in terms of getting working capital and getting back to business,” says Vinod Kumar Gupta, Managing Director of Dollar Industries, who has factories in garment clusters of Tiruppur, Ludhiana and West Bengal.
“..This chaos is the result of sudden rise in yarn prices and surge in demand during lockdown”, said DK SelvaRaju, Secretary General of SIMA, explaining the reason behind the chaos and problems arising as demand far exceeded supply.
Yarn prices began heading north, after supplies were unable to match demand, from December onwards. The mismatch cropped up as garment and fabric manufacturers resumed production operations quicker than the spinning sector.
This results in the yarn inventory with the spinning mills drying up, while the rise in cotton prices compounded the issue.
However experts strongly attribute the price rise to strong exports and firm ICE cotton more than domestic demand.
China's demand for India's cotton has pushed domestic yarn prices higher, said India Ratings and Research. Accordingly, domestic yarn production increased in January 2021, led by a strong export and moderate domestic demand during December 2020.
"While yarn production was substantially lower on a YoY basis up to 8MFY21, exports increased by higher single digits YoY due to a healthy demand from neighbouring countries.”
A US ban on Chinese cotton along with an increase in demand for the yarn from Beijing has pushed domestic prices. Earlier, the US banned imports of Chinese cotton due to human rights violations against Uighur Muslims in the Xinjiang region.
Ajay Kumar, Director, Kedia Commodities, said the demand for cotton from yarn exporters has been strong as the cotton prices are low in India compared to global markets has made Indian exporters competitive in overseas markets.
Early this week, Over 8,000 units in Tirupur--India’s largest garment manufacturing export hub Tirupur in Tamil Nadu, shut their units protesting against rising yarn prices.
Manufacturers said the price of violet label yarn has increased from Rs 200-210 per kilo in November-December 2020 to about Rs 300-320 per kg currently. This is the quality grade of yarn that is commonly used by manufacturers. The price of another quality grade ‘Red label’ has increased to about Rs 320-340 per kg.
“Most of the spinning mills manufacturing yarn are exporting it. We want the Union government to ban yarn export and regulate yarn prices,”said R Sakthivel, coordinator of Tirupur Exporters Forum.
Tirupur Exporters Association and the South India Hosieries Manufacturers Association not only expressed concerns over rising prices in the domestic market but also said that companies that export finished goods to foreign markets are worried about losing their competitive edge to other exporting countries, calling for urgent government intervention.
“We are already at a disadvantage because of the import duty they bear when buying from us. Now, to be profitable, we need to increase our prices by 15%, which no buyer will agree to,” said Sakthivel. “Most of our buyers have been hit hard by Covid-19.”
Recently, Federation Of Hosiery Manufacturers Association (FOHMA) has also written to the Union Finance Minister Nirmala Sitharaman, the Union Ministry of Textiles and state textile ministers in Tamil Nadu and West Bengal seeking intervention and a possible ban on the export of yarn till prices cool off.
KB Agarwala, MD of Rupa & Company and the president of Kolkata-based Federation Of Hosiery Manufacturers Association (FOHMA) says that spinning mills, who are the source of supply of yarn for manufacturers, are focusing on the export market and not fulfilling domestic demand.
Selvaraju of SIMA is of the same opinion. “There is currently good demand from the export market and spinning mills are taking advantage of the demand-supply gap. Raw material prices have increased only by about 30 percent, but the mill owners have increased prices by 60 percent”.
Increasing costs are forcing these companies to pass on the price hike to consumers. Dollar Industries, which makes innerwear, kids wear and winter care garments, has already hiked prices by around 10 percent in the past few months and will be hiking prices by another 5-7 percent from April 1, 2021. On the other hand, Rupa, which also makes innerwear and thermals has hiked prices of its products by 10 percent.
DK Selvaraju of SIMA, however, believes that “Government intervention (in case it happens)..may not still be able to solve the issue of rising yarn prices completely.”
“It is a free market..spinners are taking advantage of the robust Chinese demand. There’s nothing wrong with it..It only depends now on the extent of yarn exports from China and rally in price on ICE cotton”, he adds.
It is to be noted that global market experts attribute the rally in ICE cotton prices as another reason fueling yarn firmness. Global analysts note that recently ICE cotton most active futures, recently, cooled off from levels near 95 cents to sub 85 cents during the latest week. This, they view, as a correction in an overbought market, driven by hefty long positions in managed money.
Meanwhile, CZCE cotton yarn futures prices have surged from 19,900 Yuan/Tonne in late-September last year to 25,223 Yuan during early March 2021. That's a rise of over 26% in a span of five months.
The CFTC report for the week-ended 16th march showed that speculators lightened their position during the recent selloff, but they still held a 7.10 million bales net long, while index funds carried a 7.72 million bales net long position. Considering the low trading volume and the relatively small change in open interest, these positions have barely changed since the last report.
As for cotton prices, it all depends on speculators’ plan of action. Cotton analysts still view the recent fall as a correction and not a trend change. With a tight U.S cotton balance sheet, they expect the prices to revert to bullish turf.
This sums up, to the fact that yarn prices are far from done with their northward flight.
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