India'S Cotton Price Soars And Textile Industry Suffers

Due to the strong domestic demand, the decline of cotton stocks and the 10% tariff on imported cotton, India's cotton prices have continued to rise rapidly in recent years. In July, Indian cotton prices rose 3800 rupees within 15 days. The rapid rise in cotton prices has brought heavy pressure on the industry and led to the loss of competitiveness of India's exports.

Since January 2021, Indian cotton prices have risen rapidly. Indian cotton companies have raised the lowest price of cotton bidding from INR 51000 / kand to rupees 54800 / kand, and the price of S-6 in Gujarat has risen from 43300 rupees / kand in January to 57000 rupees / kand in July, with an increase of 30%.

Due to the strong domestic demand, the inventory of cotton of Indian cotton company decreased rapidly to about 900000 bales, resulting in the continuous rise of domestic cotton price. At the beginning of this year, in October 2020, cotton India had nearly 11.5 million bales of cotton in stock, and then acquired 9.2 million bales.

In addition, cotton production in Texas decreased last year due to extreme drought, which also prompted Indian cotton prices to strengthen from December last year. However, the rise in cotton prices did not increase the cotton planting area in India. Instead, many cotton farmers continued to grow soybeans. As of the third week of July, India's cotton planting area was 10.893 million hectares, compared with 11.893 million hectares in the same period last year.

According to the South India Textile Mills Association, the sharp rise in cotton prices has brought a serious blow to the cotton textile industry chain and will also lead to the rise of domestic textile and clothing prices. The imbalance of fancy yarn prices will force spinning mills to increase yarn prices to avoid losses. To this end, the association has called on the government to immediately eliminate cotton import tariffs. The cotton association of India also asked the government to cancel the import tariff on cotton, because there is a gap between India's long staple cotton and machine harvested upland cotton. If the tariff is not abolished, the domestic area will continue to rise, bringing greater impact on the entire textile industry chain.

Although CCI provides a three-month lock-in period for bulk purchases, most spinning mills are unable to benefit from the liquidity squeeze and price uncertainty, while multinational cotton traders make full use of hedging tools to purchase large quantities of CCI cotton at lower prices. Earlier, the industry could choose to import cotton in the off-season (July to September) and keep yarn prices stable. With a 10% import tariff, this option is no longer feasible.