As per a report made by ICRA, the profits of the local cotton spinning mills will be eaten due to the weak global demand for cotton paired with high cotton prices. The cotton prices this year in the beginning of cotton harvest have started melting. But when compared with last year prices, still they soar 17% higher.
These high prices are due to the cotton shortage that India faced last season, slowly access of new cotton into marketplaces due to demonetization, and stress due to the unforeseen size of the cotton plants because of the better plants but the less planting area.
The local spinners are worried due to low export demand and this is the main concern for them. As their local capacity is increasing, so the demand for China has gone down and due to this, the cotton yarn exports have been low. When compared with last year same time period, cotton yarn export fell 23% in the first seven months of Fy2016-17. The mill consumption and also reduced imports have been improved by Chinese domestic mills.
During the first seven months of Fy2016-17, China’s cotton imports reduced by 20% when compared with same period last year and especially imports have fallen by 54% in India.
From a lull of four years, the local consumption is slowly recovering in India but due to demonetization, the immediate purchasing power is less. in the first half of Fy2016-17, Spun Yarn production fell down by 1.1% and in last four years which was 3.2% in Fy2015-16, this is the lowest growth which has been noticed.
In the first half of Fy2016-17, the increase in consumption of non-cotton yarns also made the cotton de-grow.
As the demand may bot get any boost in near future, the spinning mills will have to reduce the capacity utilisation on contribution and under pressure their profits will remain.