Cotton yarn mills planning to stop production amid poor demand, Ukraine war

High cotton prices, the Russia-Ukraine war and poor demand from the apparel industry have hit the spinning mills hard

The rise in cotton prices, poor demand of yarn due to the apparel industry scaling down production, and a growing sto¬ckpile have forced cotton yarn mills across the country to look at ceasing production from Monday, say industry sources.

Cotton prices have increased by over 60 per cent in August compared to the same period last year. And the apparel industry has been hit hard by the dip in exports due to the Russia-Ukraine war and the slow demand owing to the lingering effects of the Covid-19 pandemic.

The Tamil Nadu Spinning Mills Association (Tasma) has already urged its members to stop production from Monday and to use the existing stock to meet the orders of yarn. Sources said that other states like Gujarat, Maharashtra and Andhra Pradesh are also going for either a complete shutdown or cutting their production further by the end of this month.

“Mills are suffering losses due to the low demand of yarn and the artificially high price of cotton in the cotton market. Due to this, industry has already cut down production by 40 per cent. But there was no relief despite that, and now mills have to go for a complete stop in production,” said K Venkatachalam, chief advisor, Tasma. India has the second-largest capacity in the world, after China, for spinning cotton yarn with 50 million spindles, out of which Tamil Nadu’s share is around 48 per cent.

According to Arvind Kumar Raichura, managing director of Gujarat-based Balkrishna Spintex, most of the 90-odd spinning mills are running at 50 per cent capacity due to the shortage of cotton. “Cotton availability continues to be down by at least 25-30 per cent compared to the same period last year. Many mills are likely to shut down by September 1 if the situation does not improve,” said Raichura.

Gujarat has an estimated 1.8-2 million spindles of cotton yarn spinning capacity. In addition to the rise in cotton prices, there has been a considerable drop in yarn prices over the last three months — by 16 per cent, after touching a peak of Rs 450 per kg in May 2022.  

This rise was from a low average price of Rs 220 per kg in 2020.

Apparel industry insiders say that production has been slashed to 70 per cent capacity in the last few months. “In May cotton yarn prices rose to 450 per kg. Due to this pricing, the apparel industry faced issues in confirming orders. But over the last two months yarn spinners have reduced the average price by Rs 70 per kg,” said M P Muthurathinam, president, Tiruppur Exporters and Manufacturer Association  (TEAMA).

The cut in production by the apparel industry will naturally have an impact on supporting industries like spinning, knitting, dyeing, and so on, resulting in possible job losses.

Apparel industry sources said that the dip in demand is due to Covid-related reduction in orders, the Russia-Ukraine war and the decline in customer purchases, among others. “Due to high cotton yarn prices, the apparel industry is now working with other materials like rayon, polyester. Manufacturing costs in countries like China, Bangladesh and Vietnam are 30 per cent less than that in India. If the cotton yarn price gets back to the normal rate, we can get orders and compete in the market,” Muthurathinam added.