In the year 2015-2016, the prices of cotton have risen unexpectedly and this has caught the Cotton Spinning Industry, completely off guard. So much so, that the cotton stocks with the manufacturers and suppliers were fairly low, which in turn, will lead to the overall decline in domestic output by double digits. As of now, the industry is expecting a heavy crush of profit margins, due to the increasing imbalance between the supply and demand. To make things worse, the new arrival of the crop will also be delayed this year due to the late sowing of cotton.
Mr Sanjay Jain, who is the Senior VP of the Northern India Textile Mills' Association (NITMA) expresses his concern while suggesting that the high estimates which are rather off-mark for cotton crop have put the industry in a dwindling situation, as most spinners will likely run out of the exiting stock of raw material, way before the new crop arrives. For all we know, the existing imbalance might stretch up to the start of November, which is when the new crop is expected to arrive, owing to the delayed rains.
A large number of medium and large scale exporters in the industry work on the basis of year round contracts, and a surge in pricing as steep as this one has left them all in a fix. While the weavers have considerably less quantity of yarn that they actual need, they will probably have to buy more stock at a rather expensive price which will hamper their overall profitability. As far as the manufacturers are concerned, the price of the fabric will increase which will not only hurt their buying capacity, but will also result in reducing the overall profit margins for the entire season. This sudden and speculated price rise, will also pose problems for exporters, who will have to be satisfied with less number of orders owing to increased pricing. And for what it’s worth, they might even bleed under the burden of the existing orders for which the cost of raw materials has gone up, and was completely unaccounted for at the time of closing the deals.
Much to the disappointment of the entire industry, the prices of cotton have hiked up by almost 35% since the past three months, beginning May. Experts suggest that this hike will continue up till the arrival of the new crop, which is due by the end of October, but may be delayed till the first week of November. According to India Ratings and Research or the Ind-Ra even the efforts put in by the state-run Cotton Corporation of India (CCI), to offload the stock and sell it off to small and medium scale spinning units, in an attempt to contain the prices have failed. Another factor that is considered to be likely responsible for this uncalled for shortage on the domestic stock is that of the lack of alternatives pertaining to the biotech cotton hybrids. It is speculated that such a shortcoming will, in all likelihood, push up the cotton prices even further. The only way that the prices can be contained in the foreseeable future is through the steep rise in demand for manmade fibre.