Textile mills in India, the world’s second-largest cotton exporter, are increasingly buying the fibre from Africa due to a pick-up in domestic prices, driving up imports beyond the official forecast of 1.7 million bales for this year, senior industry executives said on Monday.
Most of the imports are being done by mills in southern India, said DK Nair, secretary-general of the Confederation of the Indian Textile Industry. The imports are expected to rise to at least two million bales in the current marketing year through September, compared to 1.45 million bales a year before, he added.
One bale equals 170 kg.
For mills in south India, cotton from Gujarat is effectively more expensive than the African fibre, thanks to the recent spike in prices, South India Mills Association secretary-general K Selvaraju said.
Although the landed cost of the African fibre in south India is almost equivalent of the price of Gujarat cotton at roughly Rs 44,500 per candy, the mills can produce more yarn out of the imported varieties due to better quality. This results in a benefit of around Rs 2,000 per candy, of 356 kg each, for a mill in Coimbatore if it imports from Africa, Selvaraju added. Moreover, on imports from West Africa, the mills are getting credit facility for six months, which can be rolled over to a period of one year, he added.
Since getting working capital loans is a lingering problem with many textile mills, any such credit facility adds to the preferability of African cotton, he added.
According to the November estimate by the state-backed Cotton Advisory Board (CAB), which firms up output as well as demand-supply estimates, cotton consumption by big mills could rise 3.1% to 25.8 million bales in 2013-14, while total demand, including small mill and non-mill offtake, was projected to inch up by 5% to 29.7 million bales.
Although India usually buys some high-grade cotton varieties in small volumes from overseas, mainly from Egypt and US, this year mills are purchasing all varieties.
Prices of the ICS-105 (28 mm) variety hit 42,000 per candy in Gujarat on Monday, up 4.7% from a month before, according to data by the Cotton Association Of India (CAI). While some textile industry executives feel farmers have held back the crop on anticipation of better prices and traders have hoarded stocks, some have blamed lower cotton arrivals in the market for the price rise.
Cotton supplies in the domestic market, too, have shrunk with fresh crop arrivals having reached 15.14 million bales as of January 26, 17% lower than a year before. The CAB has projected cotton production of 37.5 million bales for 2013-14, although many official and industry sources have expressed apprehensions about production missing the forecast due to lower arrivals so far.
