The textile industry in India is constantly kept on its toes with the value chain finding it difficult to take long-term decisions for cotton products as cotton yarn prices swing in tandem with cotton price fluctuation, upsetting ‘costing’ and margin calculations. The major reason for fluctuating prices is attributed to exports of raw cotton or cotton yarn. Though the yarn manufacturers have reservations on putting restrictions on cotton yarn exports, other players in the textile chain strongly feel that the Government needs to restrict exports of cotton yarn and should also try to make yarn excise-free, VAT-free and CST-free. It is only then that cotton yarn will become available at reasonable prices for domestic consumption…
India is among the few countries that have a complete cotton chain from farm to finished product and with cotton being a major crop; the country currently produces about 8 to 9 million bales of surplus cotton which is being exported. The possibility to further enhance production is huge as our productivity is 30% lower than world average and less than half of China. It is indeed sad that India despite being a leading producer of cotton is facing such trying times. The Government has failed to make an integrated textile policy, thereby removing volatility and risk in the system. The textile manufacturers strongly feel that the Government needs to protect the interests of all players in the chain, and this need not come from restricting exports but by encouraging more production.
A sensitive issue, manufacturers of cotton yarn are trying to strike a balance. “We are exporting only 25% of our cotton yarn production, leaving a lot of potential for growth in cotton based clothing in India. As a country, we enjoy a distinct competitive advantage in cotton, hence any future strategy has to be cotton-centric for the next five years,” says Sanjay Jain, Managing Director, T.T. Ltd. As of now the crop scenario of cotton looks good, as in the next year again the production is projected to be higher than the consumption. Yet this cannot guarantee that there will be reasonable price and availability of cotton.
In reality, China is being positioned as a decider of global cotton prices. “The Chinese policy to add stock and keep cotton in reserve plays a major role in determining the cotton price, as the world’s largest producer and consumer, has kept its domestic prices pretty higher as compared to international prices. Latest reports however indicate that China in the current cotton year may not add further stocks, which has helped in cotton prices remaining stable,” reasons Mukesh Bansal, Vice President, Fabric Business, Vardhman Textiles Ltd.
Surprisingly, while the world is cotton surplus, India’s cotton balance sheet is showing a negative trend and both in the current year and the next year, India will have to import cotton despite its production being higher than the consumption. “Indian crop is estimated at 350 lakh bales and consumption at 290 lakh bales. If export happens to the extent of say 100 lakh bales, then Indian users will have to import at least 40 lakh bales in order to maintain the opening stocks, which itself is very low. So in India, both prices as well as availability of good quality cotton will remain an issue,” argues Mukesh.
With regard to cotton prices as on date, experts expect cotton prices to correct downwardly as the new cotton season starts. However, Sanjay feels that the correction would be moderate and gradual. “The weather risk is still there over Indian and all Northern hemisphere crop so actual crop picture would be clear only in September,” he adds. Corroborating Sanjay’s views, Mukesh too is of the opinion that the international prices should remain steady, except in the case of change in the Chinese policy. In India, the prices are likely to remain firm on two accounts. One, the depreciating rupee; and second, net shortfall of 40 lakh bales,” states Mukesh.
According to latest estimates India is expected to grow 25.5 million bales in 2012-13, down 7% from the previous year affected by the late and erratic monsoon. Also, India’s 2012-13 area is estimated at 11.7 million hectares, down 4% from the preceding year.
Man-made Fibre based Fabrics… the future for India
In the meanwhile, continuous high cotton prices, especially in relation to man-made fibres, have helped to accelerate the decline in cotton’s share of global fibre consumption over the last several years. The International Cotton Advisory Committee (ICAC) reports that 2010 brought the largest single-year decline on record, in both absolute and percentage terms, when cotton prices reached record highs. Although cotton prices have fallen dramatically since then, they still remain relatively high compared to man-made fibres.
Declining global competitiveness is reflected in the US textile market, cotton products accounted for nearly half of US net textile imports in 2012, but cotton’s share compared with that of other fibres has declined in recent years due to continued high cotton prices relative to man-made fibres. In 2012, cotton textile and apparel products accounted for 49% of the total, compared with 50% in 2011 and 54% in 2010. During the same period, man-made fibres accounted for more than 44% in 2012, compared with less than 44% in 2011 and only 40% in 2010. The downsizing of cotton related products many believe is irreversible and even if the relative price of cotton returns to more historical levels, manufacturers may be reluctant to add more cotton back into these products.
The industry experts strongly feel that the importance of man-made fibre would also increase in India, as global consumption increases. There are ongoing innovations happening in man-made fibre which is making it more user-friendly and leading to more options for the consumer. However, man-made fibre usage in India is still lower than the world average which is mainly due to tax disadvantage in man-made fibre. Man-made fibre cost can be reduced by increasing scale of production of fibre manufacturers and sourcing chemical raw materials cheaper. The industry is demanding a level playing field with cotton in terms of taxes and subsidies. “We cannot afford to ignore the man-made fibre segment. It has to be focused and policy corrections/support is needed to ensure we get stronger in this segment,” concludes Sanjay.
