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Thursday, Mar 10, 2005

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Cheap cotton price weaves pressure on VSF yarn producers

G Gurumurthy

Coimbatore , March 9

YARN producers using viscose staple fibre (VSF) say the cheap prices of cotton exert price pressure on their products, namely 100 per cent viscose yarn/blends as the softening raw cotton prices have forced many VSF spinners migrate to cotton yarn spinning.

"At least 10-15 per cent of the spinners who used to produce 100 per cent viscose or viscose-cotton blended yarn have chosen to shift to cotton yarn production this year because of the easy availability of cotton and the lower raw cotton prices," said Mr P. Selvaraj, proprietor of a 100 per cent viscose yarn producing company.

He said with the trend in international market too at present favouring cotton yarn due to softening prices, the export of viscose/blended yarn has come down affecting the non-cotton yarn spinners.

According to him, contrary to the general expectation, the Union Budget, which has offered a reduction in excise duty on polyester filament yarn to 16 per cent, has failed to give the expected relief for the VSF industry.

But unfortunately, the duty continued to remain at 16 per cent, which has led to a situation where the duty on raw material was higher than the excise duty on VSF spun yarn at 8 per cent.

This duty structure that has increased the raw material cost for the non-cotton sector has left viscose yarn spinners showing surplus `Cenvat' duty credit, which they cannot utilise.

According to him, for a 25,000-spindle unit, the accumulated Cenvat credit stands at around Rs 1 crore. More than the VSF spinners, the dilemma over not getting any reduction in excise duty appears to be far greater for Grasim Industries, the country's lone VSF producing company.

The company is particularly concerned at the parity between the `cotton' chain and that of the `blended/non-cotton' chain, which was disturbed by last year's Budget with the introduction of exemption route for cotton yarn and fabric sectors.

VSF spinning industry sources said Grasim, which has strongly pleaded post-Budget for bringing down the excise duty on VSF from 16 per cent to 8 per cent, the same as at yarn stage as it prevails now, is reported to have told the Government that the extent of competitive pressure developed against blended and non-cotton is as high as Rs 10 per kg which is almost 5 per cent of the fabric value.

The company has noted that the textile trade, being highly competitive, will not absorb this kind of price differentials.

Grasim has also urged the Finance Ministry to bring down the excise duty on VSF from 16 per cent to 8 per cent and that of spun yarn from 8 per cent to 4 per cent on the lines of cotton yarn and fabrics. Alternatively, it had suggested that the excise on VSF and spun yarn be brought at par at 8 per cent.

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