Surge in cotton prices spells trouble for spinning mills

By

Isabelle Crossley

Published
Jun 15, 2018

Although cotton prices were stable until January this year, speculation over a lower output this season has made domestic prices increase, which has put strain on cotton spinning mills.

The financial year 2018 was profitable for many cotton mills, thanks to the price stability that had lasted until January 2018. However, after that, market speculation about potential problems drove the cotton price by 15 percent.

The Ministry of Agriculture estimated that cotton crop sowing in the Kharif season that runs until May was 14 percent lower compared to a year ago. This, along with the rating agency Icra Ltd.’s forecast of a 7 to 8 percent drop in cotton acreage, caused speculation of a lower output this financial year. Cotton acreage is expected by Icra Ltd. to drop to 11.4 million hectares in 2019.

The seasonal produce estimate of 35 million bales for the calendar year 2019 is also lower than the output for last year. Complaints of cotton pest attacks have marred cotton production and increased losses.

What this means for the spinning mills is that profit could be harder to attain if prices remain high.

However, the second half of the 2019 financial year could prove more positive for larger mills such as Nahar Spinning Mills Ltd., Indo Count Industries Ltd., and Vardhman Textiles Ltd. as they have a larger stockpile of low cost cotton stock to continue using as reported by Livemint. Whether or not yarn prices improve will also decide whether mills can absorb the cotton price increase.