As the cotton season draws to a close this year, small spinning mills are seen churning out yarn in large volumes from factories in Tamil Nadu though they are winding up the year on a disappointing note with cotton prices remaining at higher levels dashing hopes of any relief. After reports of short supply coupled with frenzied speculation by traders Cotton prices have spiraled and touched close to Rs 50,000 a candy over the last few months.
With the arrival of global crop priced around Rs 45,000 a candy and the Centre's announcement restricting cotton with the government procurer Cotton Corporation of India (CCI) for small mills, prices dropped nominally. Now, the Gujarat Cotton, Shankar-6, trades at around Rs 43,400 a candy and is expected to slide some more but industry representatives rule out the possibility of normalisation.
While the government banks on monsoon to offset the 10 per cent reduction in cotton acreage, entrepreneurs believe that pre-emptive action by the government can insulate the industry against price shocks. Mill owner Prabhu Remarked Damodharan says they had exported cotton at Rs 94 a kg in the middle of the season and within one quarter they are importing the same type of cotton at an average of Rs 124 a kg.
When cotton prices raged recently, entrepreneurs in Tamil Nadu had scaled down their manufacturing time. And after prices zoomed, the same mills lessened work weeks in a production cut to not hurt operating margins. Manufacturers in Andhra Pradesh had even announced weekly holidays till the price rise passed over. The trend had emerged even as a brightening market recovery in European nations offered hope to Indian millers.
Over the last year, yarn manufacturers have been calling for the government to create a cotton reserve that could be sold in market in times of supply shortfall to conytol prices. After the inflation this year, mill associations have begun lobbying the Centre for procuring 70-80 lakh bales every year.
