By admin       2017-01-09

Low prices of crude oil, lesser purchasing power of oil producing nations will affect the fibre s prospects 09 January, 2017Low crude prices tend to push up man-made fibre usage, hurting cotton demand, says Rs. Jalan, Managing Director, GHCL, a listed company that is an integrated manufacturer of cotton textiles. He sees price stability and is positive that GST will level the playing field for all and benefit the cotton industry. Excerpts from an interview:How is the cotton supply situation in India currently?The crop supply situation is good in India this year. It is expected that about 350 lakh bales will be available during this season. There is a temporary delay in the supply because of demonetisation. Usually, around this time of the year, the daily arrival would have been more than two lakh bales per day. But it has only been 1.25-1.5 lakh bales per day, likely due to demonetisation. This will lead to a prolonged season, but this impact will eventually pass. Globally also, the supply situation is good about 9 per cent increase in total cotton production is expected.What has changed on the supply side of the equation in the global market in recent years?We see a higher share of Bt cotton. This has been positive as it helps with better yield and better margins for farmers. India has now become the number one cotton growing country in the world, displacing China. The downside of Bt cotton is that it has lower staple length compared to other cotton varieties such as the MCU-5 grown in South India. As a result, the 32mm cotton fibre used to spin medium counts is shrinking. We see imports or a shift to new spinning methods to overcome the staple length issue.Given the current dynamics, where do you think prices will head?Historically, prices remain range-bound fluctuating between 8 and 15 per cent in a normal cotton year. Prices vary based on crop size and demand outlook. We saw a high of about ₹60,000 per candy (of 356 kg) about four years ago. Globally, there was a surplus in 2014-15, when production was 26 million tonnes (mt), but consumption was 24 mt. In 2015-16, demand remained static but production dropped to 21 mt.This has helped in price stability. In a year, price is low at the start of the cotton season, around October. Prices increase after the season, about early April. Considering the expected lower export to Pakistan, the crop size this year can be taken as a normal one. This year, the lowest price so far is ₹38,000 per candy (spot) for S6 cotton. Currently, it is about ₹40,000. Prices are expected to be mostly steady and range-bound.How is the cotton textile industry looking globally? The cotton textile industry is expanding in Bangladesh and Vietnam and shrinking in China. Chinese cotton production has decreased from about 7.5 (mt) about seven years ago to 4.55 mt currently as the area of cultivation has decreased.Yarn and garment industry is also hit with higher labour and power costs, making it less competitive; the per capita consumption is up locally and hence, export is down.Bangladesh and Vietnam have lower production costs and duty advantages in export; still, India is at an advantage due to local availability of the fibre.In the past, China ramped up cotton imports and currently has sizeable inventory. Also, its policy changed from buying cotton at a high price from farmers to providing subsidy. Imports by local mills have reduced due to higher availability of cheaper cotton. Going forward, higher disposable income in developing countries will help in demand growth. We see a trend towards cotton-rich blended garments, both in knitted and woven segments. The increase in demand for cotton fabric due to improvement in macro-economic conditions will be met by improvement in yield. What changes will impact the Indian cotton textile industry? The continuous low price of crude will hurt the cotton industry. Moreover, the purchasing power of oil producing countries has also come down. In the last few months, rural demand is down. This, along with the shift to synthetic fibres, has dampened yarn prices. Implementation of GST may be positive for the industry.Currently, different States have different tax structures and this price variance is hurting the cotton industry as a whole.When GST is in place, it will create a level playing ground for everyone and will be positive, particularly for companies such as GHCL that have integrated processing that is distributed geographically.

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