As the Chinese cotton auction started at a 25 percent premium over the prevailing fibre rate in India, Indian exporters are pinning hopes on a revival in cotton yarn exports.

Despite a robust demand from Bangladesh, overall cotton yarn exports remained under pressure during the current financial year due to sluggish demand from China. For the April–December 2016, India’s cotton yarn exports slumped by 12 per cent to 872.19 million kgs from 987.21 million kgs in the corresponding period last year. Cotton yarn exports from India rose by a marginal 4.29 per cent at 1307.11 million kgs for the financial year 2015-16 from 1253.33 million kgs for the previous year.

The first day of Chinese auction quoted cotton prices between Rs 51,000 and Rs 56,000 a candy (356 kgs) as against Rs 42,000 a candy currently prevailing in most local markets here. This means Chinese cotton is costlier by a wide margin. 

Also, the cotton being auctioned in China is up to seven-year old. By nature, the quality of natural cotton starts deteriorating after a two-three years as the fiber starts growing yellow.

Still Chinese spinning mills buying cotton perhaps for blending with fresh cotton. But, because of high prices, India tends to gain despite 3.5 per cent levy of duty by China on import from India. 

India faces direct competition from Vietnam as China has allows zero duty import from there. So, instead of cotton, Chinese textiles mills would move to purchase cotton yarn from India.

“We are expecting, therefore, cotton yarn exports to turn positive this year after a steep decline last year,” said Siddhartha Rajagopal, Executive Director, The Cotton Textiles Export Promotion Council (Texprocil).

Meanwhile, cotton yarn demand from domestic mills have also revived with its price has risen by five to seven per cent in the last two-three weeks. Yarn price follows the trend of cotton price movement, of course, with a lag of 1-2 months. Today, cotton prices have risen sharply so far this calendar year with the benchmark Shankar 6 variety hitting to the level of Rs 12,188 a quintal on Tuesday, the highest in five months. Cotton (Shankar 6) price has jumped by over 10 per cent this calendar year. This level of cotton price was earlier seen on October 8, 2016. International price of cotton at 79 $-cents per pound is also all time high.

“Yarn demand from overseas buyers remained sluggish since October price hike in cotton as importers held their orders in anticipation of price fall. But, now they believe that cotton prices are not going to come down. So, they are booking cotton and cotton yarn. So, the overall demand has revived in the last few weeks,” said Manikam Ramaswami, Chairman And Managing Director, Loyal Textile Mills Ltd, a Chennai–based textiles manufacturer.

Meanwhile, a recent Care Ratings report forecast IndiaΆs cotton yarn output to decline by five to seven per cent to 3,936 million kgs for the financial year 2016-17 on the back of sluggish demand in past months with substitution taking place from man made fibre (MMF) as well as distressed direct yarn exports due to lower demand from China. Yarn demand in other export markets will be healthy, the report said.

After declining by 10 per cent in 2011-12 cotton yarn production increased by over 14 per cent y-o-y to 3,583 million kgs in 2012-13. In 2013-14, production increased by about 10 per cent to 3,928 million kgs. High cotton prices and easy availability of MMF at competitive rates led to slower growth of production of cotton yarn.

Spinning mills, however, have urged the government to extend 2 per cent tax benefit to yarn sector under Merchandise Exports from India Scheme (MEIS).