Indian Cotton Spinners: Caught in the web of a global downturn

Year 2023 wasn't just a bad one it was a brutal for Indian cotton spinners. Battered by a global yarn price crash, rising input costs, and limited access to affordable financing, many saw their profits evaporate, replaced by mounting losses and a bleak outlook.

Statistics paint a grim picture

The table reveals how the sector has played out in 2023. And the picture is not very optimistic indeed. The story of Vardhman Textiles, a leading Indian spinner, exemplifies the widespread financial woes. They reported a net loss of Rs 111 crore in Q3 FY24, a stark contrast to the Rs 149 crore profit in the same period last year. Despite cost-cutting measures, the company struggled with falling yarn prices and rising input costs, leading to a significant loss. Similarly, KPR Mills, this South India-based spinner reported a net loss of Rs 23 crore in Q3 FY24, attributing it to the global yarn price decline and rising raw cotton costs. In fact, textile stocks on the Bombay Stock Exchange (BSE) saw a significant decline in 2023, with spinning companies like Vardhman Textiles, KPR Mills, and Ginni Filaments witnessing drops of 20-40 per cent.

The Indian spinning industry is highly fragmented, with numerous small and medium-sized enterprises (SMEs) lacking economies of scale and bargaining power. Coupled with this there has been limited government support compared to some competing countries, particularly for spinners.

Global yarn price crash

 The price of yarn plummeted almost 20-25 per cent globally in 2023, significantly impacting profit margins for Indian spinners. While India produces cotton, it still relies on imports for about 20 per cent of its needs, leaving spinners exposed to global price fluctuations and currency devaluation. Similar to their Bangladeshi counterparts, Indian spinners faced a mix of challenges:

Global yarn price decline: Oversupply and weak demand in major markets like the US and Europe led to a significant drop in yarn prices, squeezing margins for Indian spinners.

Rising input costs: The cost of raw cotton increased due to global price fluctuations and domestic factors like higher minimum support prices (MSPs) for farmers. Additionally, energy costs, particularly for power and gas, have been rising steadily.

Limited access to affordable financing: Tightening credit conditions and higher interest rates made it difficult for spinners to secure working capital, hindering their ability to compete effectively.

Outlook for 2024

Business this year could remain uncertain as global cotton prices are expected to remain stable or drop slightly due to a projected increase in production. However, domestic prices in India might fluctuate depending on government policies, minimum support prices, and import trends. Meanwhile, outlook for yarn prices remains uncertain. While a slight recovery is possible, factors like global demand, competition from other countries, and the overall economic climate will play a crucial role.