Rising cotton exports shrinking cos’ profits
RISING DEMAND for Indian cotton in countries like China and Taiwan is threatening bottomlines of Indian textile companies. With countries like China and Taiwan, which are fastgrowing markets for cotton exporters offering them better prices, textile companies including Arvind, Raymond and Aarvee are feeling the pinch. Though textile companies claim the prices may remain stable this year owing to good yield, margins have shrunk by nearly 10% in the past two years. On an average, cotton prices have shot up from Rs 43-45 per kg two years back to Rs 50-52 per kg. Industry sources say, of projected cotton exports of 70 lakh bales, China and Taiwan may account for nearly 60%. “Earlier, cotton prices were driven by international market and there was a difference between the prices in domestic and international market. The prices in domestic market were 10-15 cents per pound lesser than the prevailing international rates. The scenario has changed in the last two years, and with higher quality production of cotton in India, China and Taiwan are offering higher prices, especially for Shanker-6 variety. This has forced domestic denim and textile manufacturers to pay more,” said Arvee Denim CMD Vinod Arora. Cotton consumption in China has more than doubled to seven crore bales in the last five years triggering more cotton imports from India. Taiwan is again an emerging market. “Indian cotton quality has been approved by international market, which has led to increase in demand for Indian cotton and prices,” says Santoshi Exports CEO Prashant Didwaniya. As compared to last year, Indian cotton prices in International market has increased almost 20%. Following the rise in demand, it is estimated that the exports will rise to 70 lakh bales this year, from 55 lakh bales last year. Stiff competition in the market does not allow textile companies to increase prices of final product. Raymond, which requires around 1.25 lakh bales of cotton per year, has witnessed a price hike of Rs 1,000 per candy in last 6 months, say company officials. Similarly, Arvind Mills has shelled out 15% more for procuring raw material in last one year. The silverlining this year is the estimated production of 3.25 crore bales as against 2.73 crore bales last year. At least when the arrivals is about 80,000 bales in the beginning, which is expected to reach 2 lakh bales per day within next 15 days.