Textile industry is impacted by cotton prices soar

Since January 2021, the price of cotton in India has risen rapidly. Cotton India has raised the lowest bid price for cotton from 51,000 rupees/kander to 54800 rupees/kander from July, and the price of S-6 in Gujarat has increased from 43,300 rupees in January. Kander rose to 57,000 rupees/Kander in July, an increase of 30%.

Reasons for rising cotton prices in India

Due to strong domestic demand, the cotton inventory of Indian cotton companies quickly dropped to about 900,000 bales, resulting in a continuous increase in domestic cotton prices. At the beginning of this year, in October 2020, the Indian Cotton Company's inventory of cotton was close to 11.5 million bales, and then 9.2 million bales were acquired.

Declining cotton stocks and a 10% tariff on imported cotton, Indian cotton prices have continued to rise rapidly recently. In July, the Indian cotton price rose by 3,800 rupees within 15 days. The soaring cotton price put heavy pressure on the industry and caused India’s exports to lose competitiveness.

In addition, last year, the extreme drought in Texas led to a decline in cotton production, which also prompted Indian cotton prices to strengthen since December last year. However, the increase in cotton prices did not increase the area of cotton planting in India. Instead, many cotton farmers continued to plant soybeans. As of the third week of July, India’s cotton area was 10.893 million hectares, compared with 11.893 million hectares in the same period last year.

The impact of the sharp rise in cotton prices

The South Indian Textile Mills Association stated that the sharp increase in cotton prices has dealt a serious blow to the cotton fabric industry chain and will also lead to an increase in domestic textile and apparel prices. The imbalance of flower yarn prices will force spinning mills to increase yarn prices to avoid losses. To this end, the association has called on the government to immediately abolish cotton import tariffs. The Indian Cotton Association also asked the government to abolish cotton import tariffs because of the domestic gap between Indian long-staple cotton and machine-harvested upland cotton. If tariffs are not abolished, the domestic area will continue to rise, which will have a greater impact on the entire textile industry chain.

Although CCI provides a three-month lock-in period for bulk purchases, most spinning mills cannot benefit from it due to tight liquidity and price uncertainty, while multinational cotton traders make full use of hedging tools to purchase at lower prices A large amount of CCI cotton. Earlier, the industry could choose to import cotton during the off-season (July to September) and keep yarn prices stable. Due to a 10% import tariff, this option is no longer feasible.