The Hindu Business Line : Mounting yarn stock puts spinners in fix

THE tumbling raw cotton price in the last two weeks should have, in a normal year, elated the textile spinners, but this time it has failed to enthuse the spinners who are in jitters over their mounting stocks of yarn.

A huge inventory build-up in the form of unsold cotton yarn stocks with the spinners, who are also saddled with the high-priced cotton bought over in the previous season, has landed them in a Catch-22 situation.

These spinners, according to textile industry sources, had bought cotton in the last season (Oct-Sept 2003-04), and these stocks(which then carried higher moister content and hence had to suffer value loss) were intended to last till November and December this year.

But this long cotton cover has now begun to hurt them most with its inherent value loss. The mills are wary of purchasing fresh cotton now - though available at very low prices - especially when the spinners are not able to liquidate their cotton yarn converted from last year's high-price cotton.Industry sources who wished anonymity said some of the reputed spinning mills which managed to cover cotton in the last season for a long position (most of them through imports too) currently face problems in disposing their yarn in the market, from which buyers of yarn and cloth have chosen to stay away.

Yarn and fabric buyers, the sources said, have halted their purchases on two counts - the uncertainty impinging on the likely price scenario in the new trade regime under the WTO arrangement for textiles in three months and the possibility of further slide in domestic raw cotton prices by November-December, when the daily raw cotton arrivals will hit the peak curve.

The cotton trade sources said that the price of lint cotton in the current season fell by 30% from the July-August price levels (for both the much in-demand J-34 and the Sankar-4 varieties). The fall in cotton yarn price is steeper at 35% for the same period.

Spinners anticipate that the raw cotton price in the domestic market will spiral down further when the volume of the daily arrivals of kappas into the market picks up strength by next month. Hence, they prefer to stay away from cotton purchases right now.

Sources in the spinning industry said many spinning mills report yarn stocks ranging from 20 days to one month's production and in some cases, they carried two months of production in stocks.