INDIAN COTTON SCENARIO - A spinner, ginner and exporter’s view T T Limited December, 2008
Who are we ?_____________________ • 58 year old vertically integrated textile group. • Have three Spinning Mills (located in North, South and West India ) • Doing both own and contract ginning of various types of raw cotton in Gujarat/Maharashtra – about 1500 bales/day • Exporting and selling raw cotton in India – exported 500,000 bales and handled 100,000 bales for local market last season. • Have a state of art knitting factories in North and South India • Garment manufacturing in Tirupur, Kolkata, Varanasi, Kanpur and Saharanpur
Indian Cotton story… Figures are in lac bales Of 170 kgs each
As a mill we should be happy that… • 4th year in running, we have a bumper crop • Both area and productivity has grown • Estimates for 2012 is between 39.0 to 45.0 mln bales • Quality is better due to use of BT seeds, better ginning • Trash levels/contamination is relatively lower due to better ginning practise and BT seeds • Average length of cotton fibre is growing due to BT seeds – hence shortage of short length fibre • Most cotton is double roller gin and hand-picked • Lustre, short fibre content, dye absorption and neps is amongst the best in the world
However… • Mills are facing their worst ever financial crisis • Raw cotton cost for last 2 seasons higher than international parity – thanks to international speculators and the Indian Govt. We were abt 5 cents/lbs cheaper a few yrs back • Contamination makes us sell our yarn 5-7% cheaper • Peak season cotton gets exported, leaving Indian mills with availability of lower quality • Mills had to import last yr to meet end season requirement - Stock to use ratio is 18% against global ratio of 40% • Due to cheap sea freight/accessibility by land, landed cost of cotton is cheaper for mills in other nations than India • No option to hedge and cover cotton forward
Factors affecting prices… NY FUTURES USD/INR GLOBAL DD/SS PRICE? OTHR FIBRE PRICES YARN DEMAND LOCAL DD/SS GOVT POLICY ? OTHER CROPS
Some suggestions to upgrade… • Efforts to be taken for avoiding contamination in transportation/storing of kapas, pala house. • Despite TMC trash is high– need to run cleaning machines properly, moisture should be at right levels. • Kapas of same type should be mixed to get uniform fibre properties in a single lot. • Should try to unlock value by grading • Also need to study how to maintain Mic above 4.0 levels and improve maturity – would give better grade and dye absorption • Extra cloth should be used to ensure full covering • Moisture should be evenly distributed in cotton and kept within acceptable level of 8 to 8.5 percent • Effort to improve logistics to reduce transportation costs – railways is one option
Some food for thought… • Landed cost for popular types like S 6/J34 is lower for Far East Asia and neighbours agst South Indian Mills • Our main advantage raw cotton is no more cheaper than competition • Interest cost internationally has fallen, while in India it is relatively high • Poor financial position of Indian mills – cant stock/hedge –what do they do ? • MSP for farmers have increased by about 40% - market rises and falls but can this be adjusted to market fluctuations • Should exports be restricted to ensure sufficient cotton for mills –do we need a fibre policy like China ? • Raw cotton exports up by 50%, end products same or down in 07-08 – are we develping on the right side ?
And a question… • Will Indian mills get cotton at atleast International prices ? • Will we get access to the best quality of our cotton ? • Will our cotton be our competitive advantage in being a Textile Super Power ? • Should the value added segments of Textiles invest and grow ? …all these answers depend on the cotton fibre policy of the Government
and global balance sheet is… Source: ICAC Press Release dt.02.09.08 …carry forward stock in world is about 40% as against India’s 18%
Current Balance Sheet is… … Carry forward stock is down and stock/use ratio is 18% leading to pressure on prices.