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The Southern India Mills’ Association

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Cotton yarn exports fall 10% y-o-y on poor China demand

With China, the largest importer of yarn, reducing its purchases, cotton yarn exports from the country fell 10.2% year-on-year (y-o-y) to 464 million kgs (mkgs) between April and September this year. Cotton yarn exports advanced by a mere 1.1% y-o-y in value terms to around $1.5 billion during the timeframe.
Exports to China saw the biggest fall in both volume and value terms. Cotton yarn shipments to China plunged 31.9% to 105.9 mkgs between April and September, data with the union commerce ministry showed. It fell 36.7% y-o-y in value terms to $285 million. Incidentally, cotton yarn exports hit a record $4.5 billion in 2013-14 as spinning mills performed well by taking advantage of various sops including the 2% incremental export incentive, 2% interest subvention and 3% focus market incentive.
However, export incentives provided to cotton yarn were withdrawn in 2014. Following this, yarn exports started declining and fell 26% to $3.3 billion in 2016-17. “This policy decision has adversely affected cotton yarn exports to China, the largest importer,” said Sanjay Kumar Jain, chairman, Confederation of Indian Textile Industry (CITI). “China has shifted from India to Vietnam/Indonesia as they have duty free access while Indian yarn carries 3.5% import duty,” he said. “From 2013-14 to 2016-17, there has been a decline in India’s cotton yarn exports to China by 42% while exports from Vietnam and Indonesia have increased 83% and nearly 14% respectively in the same period,” Jain stated.
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“Profit margin in the yarn industry are thin and profits are made with volumes. Withdrawal of the export incentives for cotton yarn has reduced our competitive edge by increasing our prices to the tune of 5%-6%,” he said. “Many old textile mills have been shut down. Over the last five years, spinning EBITDA (earnings before interest, taxes, depreciation and amortisation) margins have decreased at an alarming rate of 21% per annum,” the CITI chairman said. He said that the 3% IES (Interest Equalisation Scheme) benefit is essential to maintain 6-9 months of cotton inventory since it is a seasonal commodity available for four months and also to ensure consistency in quality of yarn supplied at a lower interest cost. “Indian interest rate ranges between 10% and 12.5% while interest rates of our competing nations ranges much lower at 4%-6%,” Jain said. “There is an urgent need to restore the MEIS (Merchandise Exports from India Scheme) and IES benefits for cotton yarn immediately,” he said. “There are no reasons why other segments in the textile value chain should get this benefit including MMF (man-made fibre) yarn while cotton yarn should not get the same,” the CITI chairman stated.