For cotton farmers, ginners and spinning mills, 2018-19 was a great year.
For much of the main marketing season from October to December, kapas (raw un-ginned cotton) traded at Rs 5,200-5,500 per quintal in Bathinda’s wholesale mandi, more than the government’s minimum support price (MSP) of Rs 5,150 for medium-staple varieties/hybrids. Farmers who had stocked and sold their crop in April realised Rs 6,000-plus rates.
Ginners — those who separate the lint (white fibre) and seed from the picked crop — also made money. India’s cotton (lint) exports rose to $ 2,104.41 million (Rs 14,627.55 crore) in 2018-19 (April-March), from $ 1,894.25 million (Rs 12,200.05 crore) in the previous fiscal. So did exports of cotton yarn manufactured by spinning mills: From $ 3,424.92 million (Rs 22,084 crore) to $ 3,895.52 million (Rs 27,190.25 crore).
But the current fiscal has been a disaster. Commerce Ministry data for April-July 2019 over April-July 2018 shows a collapse in both cotton and yarn shipments: the former from $ 813.96 million (Rs 5,474.15 crore) to $ 173.72 million (Rs 1,205.94 crore) and the latter from $ 1,395.23 million (Rs 9,407.15 crore) to $ 881.24 million (Rs 6,115.30 crore).
“All this is a result of the US-China trade war. Things were relatively fine till February-end. But matters have really escalated since then,” says Suresh Kumar Gupta, managing director of Punjab Spintex Ltd, a Bathinda-based mill with 25,000-spindles spinning capacity. The 59-year-old has so far not cut production or laid off any of his 1,200-odd workers — 900 regular and 300 on contract — in his mill and towel manufacturing-cum-export concern Alaska Fabtech Pvt. Ltd, which is at Dera Bassi in Mohali district. He isn’t sure, though, if this situation can continue.
The Oswal Group-owned Vardhman Polytex Ltd, on the other hand, has already sent home more than half of the 1,200 workers at its 1.05 lakh spindles unit at Bathinda in the last couple of months. “The fall in international yarn prices and raw material (lint) cost not coming down commensurately has left us with no option. There’s no point waiting and continuing to make losses,” states Vijay Arora, vice president of the company whose mill, set up in 1984, is Bathinda’s oldest.
According to Sanjay Garg, president of the Chandigarh-headquartered Northern India Textile Mills’ Association (NITMA), most yarn-making units in Punjab have reduced production by 20-50%. “My own mill (Longowalia Yarns Ltd at Ludhiana, with 65,000 spindles), is running for only five days of the week. Previously, we shut only for three days of the year during Holi, Diwali and Vishwakarma Jayanti (when machines and tools are traditionally worshipped),” he points out.
Last year, mills were selling combed yarn, for exports as well as the domestic market, at an average of Rs 230-235 per kg at this time, while lint prices ruled in the Rs 130/kg range. Currently, yarn is fetching only Rs 185-190/kg, with some mills even disposing off at Rs 170. Lint prices haven’t declined as much and are now at roughly Rs 115. Only 85% of the lint that mills buy gets used after cleaning to produce basic “carded” yarn, with the ratio at 70% in the case of “combed” yarn. At Rs 115/kg, the cost of lint in the combed yarn, thus, translates into nearly Rs 165. Adding power, labour, packing, interest and other charges takes the total to Rs 205 or so. “We are today losing Rs 15-20 on every kg of yarn that is spun from lint,” claims Garg.
Lower yarn realisations have to ultimately be reflected in lint and kapas prices as well. That hasn’t happened as yet. The new kapas crop that has barely started arriving in Punjab’s mandis such as Abohar is quoting just above Rs 5,600 per quintal, higher than this year’s MSP of Rs 5,255 fixed for medium staple varieties/hybrids.
Bhagwan Bansal, owner of S.S. Cotgin Pvt. Ltd, a ginning unit at Bathinda that can produce 150 bales of lint (one bale equals 170 kg) per day, attributes the firm kapas prices to better realisations from cottonseed. For every quintal (100 kg) of kapas processed, gins recover 33-36 kg of lint and 63-66 kg of seed. The lint is sold to mills, while the seeds are crushed in expeller and solvent extraction plants for production of oil and de-oiled cake/meal. Cottonseed oil is used in cooking and the protein-rich meal goes as animal feed ingredient.
“In the past, cottonseed prices were Rs 2,500-2,600 per quintal at the season’s start in September-October and would reach Rs 3,000 towards the end. But last year, they began at Rs 3,200-3,300 and are now at record Rs 3,700-3,800 levels. Demand for oilcake from feed manufacturers (due to last year’s lower crop of soyabean and maize, in addition to cotton) is the only thing holding up kapas,” explains Bansal, who is also past president of the Punjab Cotton Factories and Ginners Association. He, however, admits that kapas rates cannot sustain if there is no demand for lint from exporters and mills. In the event, growers’ realisations may not really exceed MSP, unlike last year. Worse, prices could fall as crop arrivals from the main producing states of Maharashtra, Gujarat, Telangana, Haryana, Rajasthan and Andhra Pradesh pick up in November-December.
In 2017-18 and 2018-19 (October-September), India produced 370 lakh bales and 361 lakh bales of lint, while exporting 67.83 lakh bales and 65 lakh bales (projected), respectively. For the current year, total acreage under the crop has risen from 117.661 lakh hectares to 124.905 lakh hectares. With benchmark global ‘Cotlook A Index’ prices at about $ 70 cents per pound, compared to over 92 cents a year ago, the outlook for exports isn’t all too good. The US-China trade tensions and growing risk to world trade and economic growth are adding to the uncertainties.
NITMA’s Garg wants the Narendra Modi government to clamp import duties on synthetic yarns, especially from Indonesia and Vietnam. “Duty-free polyester yarn imports alone from these two countries have shot up from 31,651 tonnes in 2015-16 (July-June) to 50,137 tonnes in 2018-19. The government should further have a uniform goods and services rate on fibre and yarn (as opposed to 18% and 12%, respectively) and extend the scheme for rebate of Central and state taxes/levies for garments and made-ups to yarn as well. If the industry is to be saved, we have to export at any cost,” he adds.