Yarn industry will cut output to ease stock build-up

Yarn industry will cut output to ease stock build-up

New Delhi: India’s cotton yarn industry is cutting production by a third as stocks have built up on a decline in local and international demand, and prices having slumped. The Confederation of Indian Textile Industry (CITI) says the withdrawal of the duty drawback facility and DEPB (duty entitlement pass book) benefits on cotton yarn exports last year, as well as the imposition of a 10.3% excise duty on manufactured garments this year are responsible for the crisis. It has asked for a reinstatement of benefits and a deferment of excise duty. CITI chairman Shishir Jaipuria spoke in an interview about the issue and the future of the industry. Edited excerpts:

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To what extent will the cotton yarn industry cut production?

The token closure on May 23 will reduce production by 10 million kg cotton yarn for one day. Subsequently, there will be a 33% cut in production. We will wait and watch for one week and review the situation. Simultaneously, we will be talking to the government and hope that some of the decisions which went against us, in terms of duty drawback and DEPB, will be favourably considered.

Why have global prices of cotton fallen? Does it have anything to do with the commodities meltdown?

Partly it is linked to that (the meltdown). What we are noticing is that in a short period futures prices in US went up very steeply and in a very short-term, came down very steeply as well. The same thing was witnessed in the domestic market. The prices of cotton, which were close to 40,000 per candy in October when arrivals take place, went up to 62,000 in January and sometime in early April, the prices crashed to 44,000.

How will the cotton yarn industry be affected by the surplus and fall in prices if the government does not accept your demands?

On a day-to-day basis, the spinning industry is adding stocks, the export demand has been slightly sluggish, and because of problems in the domestic industry as well as excise duty of 10.3% levied by the government on garments, the demand for cotton yarn has been very low. My end-users are people who have been making knitted fabric or ultimate garments, and the very high excise duty has affected the processing capacity.

What is your outlook on prices?

We believe cotton prices will stay almost in the same region —Rs 42,000 to 45,000 a candy—which is there at the moment. But there is some feeling that further cotton exports will take place... that should keep a pressure on the global markets. Next year, India might have a good crop because farmers got good prices for their cotton last year; so the sowing will be better in the current year. According to the estimates coming out for cotton, overall production is likely to be high on a global scale by about 12% in the 2011-12 year starting October.

Where do you see India’s cotton and cotton yarn industry going?

We always had a vision that the industry will grow. In the beginning, the textile industry was strong in Japan; subsequently, it became strong in Korea, Taiwan and other countries and now the other Asian countries have become stronger. Like China, in India, our domestic consumption and our cotton crop are significant for us to have an advantage.

What’s your outlook on production in 2011-12?

On very conservative estimates, 312 lakh bales will become 345 lakh bales in the year ending March 2012. That’s our broad estimate depending on sowing, monsoon, climatical conditions and availability of seeds...next year we are expecting 8% growth on cotton consumption of 260 lakh bales.