February 8: Uncertainty looms large over the cotton textile industry due to differences in production estimates made by the government and industry associations.Cotton mills are worried over rising cotton prices in the country without any corresponding increase in the price of yarn and fabrics. In fact, the industry has opposed cotton export in the 1997-98 (October-September) crop season to help check rising prices.
According to the Indian Cotton Mills Federation, there has been a rise of over 16 per cent in the prices of major varieties of cotton between October 1997 and January 1998.
Industry sources say that the export price of yarn and fabric was under pressure, especially after the devaluation of the currencies of south-east Asian countries. Consequently, both domestic and international yarn and fabric prices have fallen.
The industry feels that the government should immediately stop cotton exports. The government had announced an export quota of 7.20 lakh bales of cotton in 1997-98. One baleequals 170 kg. Exports so far have been estimated at less than five lakh bales which are unlikely to cross the announced quota figure of 7.20 lakh due to depressed prices in the international market.
But though the industry fears shortage of cotton due to exports, which is also making domestic prices go up, the government feels that the production this season, though lower than last year, will be sufficient for the industry.
Textile secretary Prabhat Kumar recently stated that despite the output being lower than the estimates of the Cotton Advisory Board, 150 lakh bales would be sufficient for domestic companies.
CAB had estimated cotton production at 169 lakh bales in December. The carryover stock from the previous season had been estimated at 24 lakh bales. Total cotton production in 1996-97 was about 177 lakh bales.
However, the government's estimates of 169 lakh bales production in 1997-98 got a major jolt when a premier industry body, the East India Cotton Association (EICA), scaled downproduction estimates to 160 lakh bales.The All India Cotton Trade Association, at a meeting in Indore last month, has also put the production estimate at 160 lakh bales.
But EICA has revised the carryover stock to 28 lakh bales against government estimates of 24 lakh bales. EICA says that the upward revision in carryover stock was based on figures given by physical stock held by different agencies.
The industry is not only facing rising cotton prices. It also has to contend with shortage of good quality cotton. Crop damage in Andhra Pradesh and Punjab has led to scarcity of good quality cotton, industry sources said. In fact, a number of cotton mills are contemplating imports. According to estimates made by the Indian Cotton Mills Federation, the industry may have to import as much as five lakh bales of cotton against the previous year's figure of less than 50,000 bales.
Industry insiders say that imports were not only attractive in terms of quality of cotton but more due to sharp fall in price ofcotton in the international market.
A study conducted by Classic Share and Share Broking Services shows that the rise in mill demand is another reason for firm cotton prices. In 1997-98, demand from the mill sector is projected to rise to 15 million bales from 13.8 million bales in 1996-97.
Even though this is a reflection of the sharp rise in exports, it indicates that the country has begun modernisation of the spinning capacity and entered the international market in a fairly big way, says the study. Cotton prices have risen over the last three weeks by 20-24 per cent -- reflecting the fact that the supply of cotton is expected to remain tight for the next few months. Globally, the international cotton advisory commitee (ICAC) has estimated only a marginal rise in cotton output. The ICAC has pegged the international cotton crop for the year 1997-98 at 19.77 million tonnes as compared to 19.59 million tonnes in the previous year.
Given the trend, investment perspectives on the industry will have toadjust for the likely squeeze in margins and also the change in the medium term prospects. There is little likelihood of the low domestic cotton price advantage that the Indian cotton industry has enjoyed for many years reappearing again. Since Pakistan has also similar climatic conditions, the ups ands downs of the cotton industry are likely to impact both the countries in the same way.
Since Pakistan's export basket is far narrower, Pakistani exporters will succeed in wrangling out better terms from their government than their Indian counterparts. The remainder of the financial year 1997-98, and more importantly, 1998-99 are likely to see margins and hence profit growth of cotton yarn manufacturers under pressure. Any hope of passing this price rise to the customer seems to be difficult. This is due to the fact that the the prices of polyester (a complementary though not directly competing fibre) and viscose (a directly competing fibre) are going to be low due to high east Asian production in thesefibres.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
