*Textile, yarn firms demand duty-free cotton imports on dwindling supplies | Business Standard News

Clipped from: https://www.business-standard.com/article/economy-policy/textile-yarn-firms-demand-duty-free-cotton-imports-on-dwindling-supplies-122040501095_1.html

Pipeline stocks will last for just about three-four months, companies say

cotton yarn, cotton, textile, clothes

Cotton yarn

With cotton textile and yarn makers bracing for a shortfall in the supply of raw materials in the months to come, the firms have once again called upon the government to immediately allow duty free import of raw cotton.

Trade sources while discounting the possibility of any big ticket hoarding by traders and multinational companies, said that on March 31, 2022, around 3 million bales is left as stocks in the pipeline as against a normal of 5-6 million bales (1 bale=170 kilograms), while another 5 million bales is with the farmers.

This would make a total pipeline stock of around 8 million bales which is good enough to last the next 3-4 months that is till June or July.

“While the new crop is expected to come only around October, which means that to run our mills and spindles, we will need to import a minimum 4 million bales of raw cotton soon at zero duty,” a senior industry official said. The situation has become worse as the actual production of cotton is lower than initial estimate due to damage to the standing crop (see chart)

India imposes a duty of 10-11 per cent on raw cotton. However, another section of players is apprehensive on the impact of duty free imports because overall the world cotton market is extremely tight.

Cotton prices have spiked from Rs 70,000 per candy (one candy is 356 kg) to over Rs 90,000 per candy in a span of few months at a time when orders books across the textile value chain have led to increased demand for cotton in the domestic market.

“For the first time in several years, cotton is not going to be enough to run mills. Lot of mills might be without cotton and might even end up shutting down for 3-4 months until fresh cotton arrives in October 2022. Also, Indian cotton prices have risen so much that it is now at least 5-10 cents costlier than US cotton.

Hence, lifting up of import duty on cotton has become inevitable,” said Ronak Chiripal, chief executive officer of Nandan Terry Ltd, part of the Ahmedabad-based textile conglomerate Chiripal Group.

As against an average stock of over three months, Chiripal said the company is now left with stock of only 1.5-2 months since it was waiting for cotton prices to rationalize before restocking which never happened.

“We didn’t replenish our stocks when cotton prices were at Rs 70, 000 a candy hoping that the same would come down. We only started stocking when prices were rising and there is no correction in sight. Hence, the current stock of cotton is quite less than usual,” he added.

Similarly, the Southern India Mills’ Association (SIMA) along with other textile industry bodies has flagged off concerns over shortage of quality cotton that the textile and clothing (T&C) industry is facing at the moment.

According to National Committee on Textiles and Clothing (NCTC), a delegation formed by multiple industry bodies including SIMA and Cotton Textiles Export Promotion Council (TEXPROCIL) among others, the shortage comes in the backdrop of declining domestic cotton production during the current cotton season and the increased demand from the textiles and clothing industry coupled with high cotton exports.

While the government had levied import duty on cotton to protect the domestic industry, players like Nandan Terry are of the view that the move is also impacting the domestic bed linen and towel makers which are dependent on imported Egyptian and Australian cotton which are not grown in India.

“In towels and bed linen, demand for Egyptian cotton and Australian cotton which India does not grow has been high. As a result, the same has to be imported but the duty does not make sense since it does not protect Indian cotton suppliers,” Chiripal added.

As a result, bed linen and towel makers have had to either quote higher prices and emerge uncompetitive compared to competing nations like China and Vietnam or take a hit on margins by not passing on the burden to buyers. EoM

The Cotton Balance Sheet (2021-22 season) *

Opening Stocks: 6.5 million bales

Production: 32 million bales **

Import (till March 31, 2022): 1 million bales

Total available supplies: 39.5 million bales

(-) exports: 4 million bales

Actual Supplies: 35.5 million bales

Estimated consumption: 35 million bales

*Cotton year runs from October to September

** earlier the production was estimated to be over 34 million bales. This is scaled down output estimate

Source: Trade and Market players

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