By admin       2016-07-13

ICRA:KOLKATA: A spurt in domestic cotton prices, which have now surpassed international rates, will hurt yarn demand and profitability of spinning companies in the current quarter, ratings firm ICRA BSE 0.99 % said in a report on the Indian spinning industry. Domestic prices of ginned cotton have increased significantly from about Rs 90­92 a kilogram in April 2016 to about Rs 122 kg currently. The increased local price of the raw material was more than what the industry expected."The spurt in cotton prices is beyond expectations and points to a severe shortage of cotton in the domestic markets," said Anil Gupta, vice preside of corporate sector ratings at the ratings firm. "Slower cotton sowing and decline in cotton sown area; apart from cotton stocking by intermediaries, could have led to this sharp rise in prices. However, the recent increase in cotton prices can motivate the farmers further and the cotton sowing area can improve in the coming months." As per ICRA estimates, in the near term, profitability of the spinning industry will be adversely impacted because of the price rise, even as it faces slow growth in domestic consumption. With local cotton prices higher than international ones, export prospects, too, will now get hit. "Both the above factors a challenge for the mills to sell their production and one can see a decline in capacity utilisation and also contribution margins, to prevent inventory build­up,"Gupta said.

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