Some spinning mills, particularly in southern India, are observing extended holidays for Diwali as they await further fall in cotton prices amidst slack demand for yarn.
With demand for yarn yet to pick up, some millers, led by the Tamilnadu Spinners Association (TASMA), have urged Finance Minister Nirmala Sitharaman to extend the window for duty-free import of cotton until March 31.
“Mills have declared an extended holiday for Diwali and are planning to run at a lower level of utilisation in the range of 50 per cent for some more period to rebalance the demand-supply trend,” said Prabhu Dhamodharan, Convenor, Indian Texpreneurs Federation (ITF).
Muhurat trading poor
“South-based mills have extended holidays as there is no demand for yarn. On the other hand, multinational companies are buying cotton that is to be delivered in December and January at low prices. But farmers are looking for better prices. It has created some sort of standstill,” said Anand Popat, a Rajkot-based trader in cotton, yarn and cotton waste.
“No mills (in some regions of Tamil Nadu) have reopened after Diwali. Cotton arrivals have not been seen after October 22 and price trends are not available over the past week,” said K Venkatachalam, Chief Advisor, TASMA.
But OP Gulia, CEO, SVP Group, which owns textile units in Tamil Nadu and Rajasthan, said all mills that had closed have extended the holiday. “There is also a problem of workers due to continued holidays till Nag Panchami. However, all better-placed mills which are open and running have not closed. They have rather reinstated the capacity,” he said.
Popat said Muhurat trading during Diwali was just 10 per cent of the usual volume. “Trading was slow as buyers and sellers adopted a wait-and-watch attitude,” he said.
Prices above MSP
According to Agmarknet, a unit of the Ministry of Agriculture, cotton arrivals during October 19-26 at various agricultural produce marketing committee (APMC) yards were 45,816.59 tonnes compared with 67,127 tonnes during October 13-18.
The weighted average price of cotton last week was ₹8,045.47 a quintal against ₹8,316.28 the previous week. However, they are higher than ₹8,019.32 in the first week of October and ₹7,353.36 in the third week of October 2021. Rates are, however, higher than the minimum support price (MSP) of ₹6,080 a quintal.
‘’There is a slowdown in the arrival of cotton as farmers are unwilling to sell cotton at a low price. The price has decreased by 10-15 per cent from the peak (witnessed in May this year) over the last 30 days,” said Ronak Chiripal, CEO, Nandan Terry.
“Cotton arrivals have dwindled for a week now due to holiday mood. No one is there to buy. This will again pick up very soon. And so will the price trends,” said Gulia.
Likely to hit floor soon
Popat said ginned cotton is currently quoted at ₹65,500 a candy (of 356 kg) by farmers but mills are bargaining at ₹64,800. “Multinational companies are offering ₹58,000-59,000 a candy for cotton that can be delivered during December-January,” he said.
Compared to domestic prices, prices on the Inter Continental Exchange, New York, are $7.73 a pound (₹50,413 a candy) for delivery in December and $7.69 (₹50,213) for March delivery.
On the Multi Commodity Exchange, the November cotton contract was quoted at ₹32,850 a bale (₹68,791 a candy) and the December contract at ₹28,670 (₹60,038).
“Spinners are keen to start production but they are likely to witness delays. At current price points of ₹60,000-63,000/candy, yarn could witness a spurt in sales,’’ said Chiripal.
“We are confident about cotton bottoming out in November with good arrivals combined with lower offtake from the mills,” said ITF’s Dhamodharan.
Popat agreed with his views, saying arrivals could pick peak by November 10-15 and daily arrivals may exceed one lakh bales.
“Post-December, exports will be in full swing. Until then, mills are unlikely to work at full capacity,” Gulia said.
“We can expect only calibrated buying at all levels due to the uncertain demand environment in global markets. The industry is closely watching the retail sales trend in developed markets and expecting some improvements in clearing out of retailers’ inventories in the upcoming peak season,” said Dhamodharan.
Once inventories are exhausted, a regular flow of orders to India can be expected in the apparel segment and “we can also compete with the current correction in raw material prices”, he said.
Popat said arrivals have been delayed in Andhra Pradesh, Telangana, Karnataka and Maharashtra due to rains. “But we need not fear any huge damage. It is less than 2 per cent in these States, 2-4 per cent in northern States and 1 per cent in Gujarat. We expect production to be around 370 lakh bales (of 170 kg each),” he said.
The Ministry of Agriculture in its first advance estimate of kharif crops has pegged cotton production at 341.9 lakh bales. Trade body Cotton Association of India has projected the crop in the current season to September 2023 at 344 lakh bales against 307.5 lakh bales — a 14-year low — last season.
Meanwhile, TASMA urged the Finance Minister to extend the duty-free window for cotton imports as the supply chain had been affected due to factors such as shipping constraints. Mills are suffering due to a lack of demand for yarn, the association said in its letter to Sitharaman.