Production cuts loom large in cotton spinning sector
Spinners may have to cut production in 2017-18 to sustain profits squeezed by a sharp rise in cotton prices over the last few months.
Experts estimate production cuts of up to 15 per cent if the current situation continues. CARE Ratings estimates India’s cotton yarn production at 3,936 million kg in 2016-17, 5 per cent lower than the 4,138 million kg in the previous year. Cotton yarn production has increased 3-3.5 per cent for the last few years to meet domestic and export demand.
The cotton spinning industry is struggling for over two years due to a decline in Chinese demand. Chinese mills that manufactured fabric from Indian yarn have reduced their activity in line with a government policy to reduce energy-intensive industries. “Many spinning mills in the unorganised sector are struggling due to a sharp rise in production costs. They have not been able to pass these on due to weak demand. Small and mid-sized mills will have to cut production. Production cuts up to 15 per cent are possible,” said BK Patodia, former chairman of the Cotton Textiles Export Promotion Council (Texprocil).
Cotton prices have risen 8 per cent since January, with the benchmark Shankar 6 variety trading at ~12,035 a quintal now. A 5 per cent appreciation of the rupee over the last three months has also affected export receivables.
After declining 10 per cent in 2011-12, cotton yarn production rose 14 per cent, year on year, to 3,583 million kg in 2012-13. In 2013-14, production rose 10 per cent to 3,928 million kg. “Small and medium sized units normally go for production cuts. Large mills continue with their production due to their fixed costs,” said RK Dalmia, president, Century Textiles.
An Icra report said growth in spun-yarn production, including cotton, blended and man-made spun yarns, declined to a five-year low in 201617. Further, the improved competitiveness of polyester staple fibre vis-à-vis cotton resulted in a 5 per cent growth in non-cotton yarn production while cotton-yarn production declined by 2 per cent. “The sensitivity of India’s exports to China’s policy on its reserve cotton stock warrant a cautious outlook on India’s yarn exports until Chinese cotton stock levels subside,” said Jayanta Roy, senior vice-president and group head, ICRA.