The sharp rise in cotton prices is threatening to upset the apple cart of booming textile exports even as the government tried to soothens the nerves by removing an 11 per cent import duty on cotton imports.

Despite the import duty removal, not many spinning and composite textile mills showed interest in cotton imports due to high costs. Globally, cotton prices started moving last year due to supply-chain disruptions, sanctions by the West on China’s textile hub, Xinjiang, and a power crisis in China, besides expectations of lower production by major cotton-growing countries.

Robust demand

At the beginning of the current season (last October), cotton prices were hovering at about ₹48,000 per candy, touched a high of ₹1 lakh per candy in March and now more than doubled to ₹96,000-₹98,000 per candy on robust demand.

Aided by Government incentives, textile and apparel exports last fiscal increased 21 per cent to $41.3 billion (about ₹3.18 lakh crore) against $34 billion (about ₹2.62 lakh crore) logged in FY20. Exports of readymade garments jumped 28 per cent to ₹13,269 crore.

Nikunj Bagdia, Managing Director, Ken Enterprises, said this is a double whammy for textile exporters with soaring cotton prices and creaking logistics.

While partial price rise is being passed on to the customers, they are delaying new orders as the high prices will not sustain for long. As expected, cotton prices will drop on lower demand with customers shifting to man-made fibre, he said.

Manoj Patodia, Chairman of the Cotton Textiles Export Promotion Council, said the steep increase in prices of raw cotton is a matter of deep concern for the entire value chain of cotton textiles, such as home textiles and fabrics making them uncompetitive in the export markets.

High raw cotton prices have pushed up the production cost for exporters. The orders taken a few months back can now be executed only at a loss, he said, seeking an urgent Government intervention to stabilise the key raw material prices.

Interest rate hike pressure

KV Srinivasan, Managing Director, Premier Mills, said that handling the price increase in raw materials is becoming a challenge as customers are unwilling to accept a cost increase like last year.

The unprecedented price increase has made exports unviable and made it difficult to achieve break-even.

“The recent interest rate hike will further put pressure on funding. It will make working capital more expensive when its requirement has increased to meet higher raw material cost,” he added.

Amit Gupta, President (Strategic Finance), Trident, said, notwithstanding the rising raw material prices, inland logistics costs have increased 10-15 per cent in the last two years due to the non-availability of ships.

Inventory at Inland Container Depots is still limited with a one-side shipping line policy of reducing the free time from 14 days to 7-10 days. Many shipping lines either not allow one-way empty pick up or charge ₹20,000-₹25,000 extra for such picks, he said.

Source : business-journal