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High yarn price makes RMG manufacturing vulnerable

Md Fazlul Hoque, Managing Director of Plummy Fashions, said yarn prices have increased by more than 40 percent in only two months. The widely consumed 30-carded yarn is now selling for $3.60 to $3.75 per kg whereas it was $2.60 to $2.80 two months ago, according to knitwear manufacturers and suppliers.

Only between July last year and January this year, international cotton prices went up nearly 28.60 percent. This is due to apparel businesses not yet having fully recovered as international retailers and brands were still waiting to place work orders in full because of fresh lockdowns in the major markets of the EU and US.

High-yarn-price-RMG-manufacturing-vulnerable
Figure 1: A rise in international cotton prices has had a ripple effect on local yarn, affecting garment shipments, especially of knitwear, during the ongoing coronavirus pandemic.

The demand-price equation is suffering from an imbalance at many levels of this sector. Hopefully, the prices will stabilize in the coming months due to increased production.

Yarn prices are adjusting itself in the downstream industry, textile millers and garments unit owners are free from anxiety about obtaining stocks at the moment- Commodities Control reported in its first of the three-part cotton special series.

The cotton textiles trade is witnessing a restoration in practically a decade. The sector witnessed significantly dangerous parts previous two years, even before the pandemic struck.

Following these difficulties Moody’s Investors Service Company ICRA has revised the FY2022 outlook for the Indian textile sector to ‘stable’, to find out the risks, the nascence of recovery and the continuing impact of the pandemic.

ICRA added in its report “Indian as well as the global cotton output is expected to decline in CYG’21 (Global Cotton Year ending July 2021). As the demand is likely to rebound on recovery from the pandemic impact, cotton stocks are expected to decline. However, despite moderation, absolute cotton stocks, as well as the cotton stock-to-use ratio, are expected to remain high, owing to sizable carryover stocks brought forward from the previous year.”

2021-cotton-output-expect-decline
Figure 2: Indian as well as the global cotton output is expected to decline in 21.

A rise in international cotton prices has had a ripple effect on local yarn, affecting garment shipments, especially of knitwear, during the ongoing coronavirus pandemic- Monsoor Ahmed, Secretary to the Bangladesh Textile Mills Association (BTMA).

Charges for its transport to the mills add to the local importers’ costs, which also has an impact on yarn prices.

Cotton prices have gone up in international markets mainly for increased imports by China, the largest consumer worldwide, because of a recovery trending among businesses. This year, China has targeted to import an additional 5 lakh bales to take the total to 1,000 lakh bales to tame its local market.

Moreover, China and Pakistan, despite themselves being major producers, have increased their import targets because of high prices prevailing in China and lower production in Pakistan. Pakistan aims to import an additional 4 lakh bales, according to data from a United States Department of Agriculture (USDA) report.

Yarn prices have increased by more than 40 percent in only two months. The widely consumed 30-carded yarn is now selling for $3.60 to $3.75 per kg whereas it was $2.60 to $2.80 two months ago, according to knitwear manufacturers and suppliers.

Md Fazlul Hoque, Managing Director of Plummy Fashions

The report also said Bangladesh may reduce its import by 5 lakh bales in the cotton marketing year (August–July) of 2020-21.

However, prices have rallied and now exceed pre-pandemic levels for factors including a recovery in use by mills, said the USDA report.

Submitted report by ICRA shows that yarn output during corona-led lockdown had dropped by 76%, though the increasing demand of domestic and exports of post-May 2020, yarn production bounced back. Cotton yarn production during September-October 2020 witnessed a rise of 3-4%. Subtotal 35% during the seven months of the current financial year and it has picked up the pace and indicates continued rise hereon.

SIMA Chairman, Ashwin Chandran, expressed that no one should panic in case of procuring cotton yarn at the moment, like rising in yarn output in the next 2-3 months is expected to stabilize the prices as like future will be forward, in the backdrop of sharp spurt in cotton yarn rates.

Resumed operations along with various spinning mills that were closed during lockdown will ensure arbitrary availability of cotton yarn, cooling off the heated price.

Shahid Alam, Vice-Chairman of Shah Fatehullah Textile Mills and Jalal Ahmed Spinning Mills, a major yarn producer and cotton user, said a lot of old stock of yarn for some months due to bad business.

But over the last two months, the old stock has been reducing gradually and the demand for yarn was improving in the local market but had not reached pre-pandemic levels.

Even the handloom sector has been on the receiving finish of the challenges arising from exorbitantly excessive cotton yarn costs. Producers reveal that cotton yarn and artificial yarn costs have surged 50-60% within the final 3-Four months. At present, yarn charges are even 20-30% greater than the charges in the pre-COVID-19 arena.

Yarn realizations and contribution margins are anticipated to stay at comfy ranges in FY2022…, ICRA’s report stated in its key metrics part.

If anyone has any feedback or input regarding the published news, please contact: info@textiletoday.com.bd

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