Chinas change in cotton policy kicked up dust in India and elsewhere, and though no sea change in global cotton scenario is expected, it triggered off a ripple effect in cotton circles. Samuel Joseph explores.
India was in the middle of yet another hot summer, when a little chilly wind under the guise of a change in Chinas policy on cotton blew across the sub-continent, dampening the spirit of the cotton-based industry. Though it was an anticipated move by some quarters globally, Chinas decision to abandon its reserve policy of cotton was a bolt from the blue for many in India and other countries. This policy turnabout follows the failure of one of Chinas inscrutable exercises to pile up cotton over the years and also its cotton import quota policy proving futile, and which only hardened the white golds prices for that country, blunting the competitiveness of its spinners. As a result of the new changes, with effect from April 1, 2014, China started supplying mills through a combination of imports (12.5 million bales, about half of 2011-12 volume) and releases from cotton reserves, which it has stockpiled to a high of 12.8 million tonne, constituting over 58 per cent of global stock.
The fallout of Chinese cotton policy change on the Indias cotton yarn exports was immediate. According to some industry sources, as China has reduced its cotton yarn import after the announcement of its new cotton policy, India saw a sharp drop by 25 per cent in the cotton yarn export. Prior to the announcement of Chinas policy, India exported nearly 50 per cent of yarn into China. Last year the average exports was around 120 million kg, which is mainly due to demand from China. But this summer yarn exports nosedived to 90 million kg, sending slight shivers across the yarn industry.
Said Dr KV Srinivasan, Managing Director, Premier Mills (Coimbatore): "Chinas decision on raw cotton imports will have a significant effect on the raw cotton prices. If China imports raw cotton, the supply situation in India will be tight and prices will increase significantly. With regard to yarn, a significant portion of Indias yarn export are going to China. Any downtrend in this will have an effect on yarn prices in India û both in the domestic and export segments."
Srinivasan revelaed an important aspect in regard to Indias competitor in cotton: "An important point, which is possibly not well known, is that China is actually a major competitor to India in the extra long staple yarn or fine count yarn segment. In the international market in these fine count value added yarn, Chinese yarn prices have been much lower than Indian yarn prices in the last 7-8 years. They have gradually taken away a large percentage of Indias share in the global fine count yarn market." In his talk with the Editor of The Indian Textile Journal, he made a plea that the Indian government could make a special effort to promote export of fine count value added yarn by incentivising the duty drawback scheme. "In the past there was no cap on the value of drawback but at present there is a cap which does not help export of value added yarn. This could be considered," he added.
According to P Natraj, Managing Director, K.P.R. Mill Ltd, Coimbatore (Read his full interview in this cover story): "With Chinas plan to cut down its cotton inventory resulting in downsizing of Indian cotton export, its prices are expected to ease." Natraj is also not worried on the cotton yarn front. "Indian spinners are specialised in producing excellent quality yarn and are highly competitive globally. Though addition of spinning capacity in 2013 was marginal, cotton yarn production increased by more than 11 per cent over previous year (3,847 million kg in 2013 and 3,464 million kg in 2012.) With increased market fo