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Vital players in the global cotton yarn market

After  2011, – perhaps one of the most tumultuous years in recent memory, some  spinners and industry observers are still scratching their heads in the first  three months of 2012. The cotton price in the world market is still in a  dropping trend adding to the miseries of the helpless spinners of the country  still waiting with their old stock yarns made from high priced cotton. Also,  there are spinners who are really optimistic that 2012 will present them  opportunities for a solid return. Market today is trying to help you figure out  how the game is played in this truly global spinning market and the present  situation of the Bangladesh spinning industry.

Maeen  Md. Khairul Akter, Research Assistant, BTT

Background
In fact it is quite hard to read the global cotton yarn market due to its volatile nature. Cotton growers are not actually the main yarn manufacturers; perhaps the major reason that the market has been seen to be unbalanced over the years. America, India, the CIS countries and China are the major cotton producers of the world. But it is seen that, they are not the major yarn producers, rather the produced cotton is exported to countries like Pakistan, Sri-lanka, Vietnam and Bangladesh where the price of labor is cheap. Although India, China and Pakistan has the luxury of using their own grown cotton to produce yarn for their local consumption and export production but countries like Bangladesh, Vietnam and Cambodia has always suffered to feed their spinning industries with cotton at right time and right price. Over-dependency on the Indian cotton has always been the major problem issue of Bangladeshi spinning industry.

Price trend
The price of raw cotton actually continues to drop. Cotlook “A” index which is globally approved index of cotton price indicates $0.9950 per pound which was well over $1 a month ago. Quotations for the base quality of cotton in the seven designated markets measured by the U.S. Department of Agriculture averaged $0.8483 cents per pound for the week. But the yarn prices are on firmer side as there is good demand forecasted. In Bangladesh 30s count yarn is being sold at 3.70-3.75 USD/kg and at 3.65-3.70 USD/kg in China. The Indian price is hovering around $3.40. Due to good demand of yarn it seems prices will remain firm. The local price of yarn is listed in the table.

Period Al-haj Karim Aftab Asia composite Badsha Mosharaf MSA J.K. Syed Spg Shirin Indian
12-Jan 3.7 3.25 3.3 3 3 3.3 3.25 3.05 3.25 3.2
12-Feb 3.7 3.5 3.5 3.5 3.6 4 3.8 3.5 3.6 3.5
12-Mar 3.8 3.6 3.75 3.75 3.7 3.75 3.8 3.4
12-Apr 3.7 3.7 3.7 3.85 3.7 3.9 3.7 3.7 3.7 3.4

*All prices are $/kg of 30s K cotton yarn
Although the prices on the paper may not be the actual trading price as excessive over-invoicing is done by the manufacturers and this is done from the owners’ level to claim extra cash back facility from the government. So it is very hard to determine the real trading price now-a-days in Bangladesh. The spinners are optimistic that the prices will remain firm as there is good demand from the garments industry.

Market strategies; India trying to be a bit smarter

The yarn market is now truly a global business. It is believed that the United States yarn market has sustainable position; even they now have less control over their destiny than at any time in the past. When yarn manufacturers are considered with capability to dominate the market, only a handful of US companies are thought about. But now you have to consider Pakistan, India, Korea, Egypt and other countries. Companies in those countries have rather different drivers than what US companies used to.

In United States it is distinctive, who the customers are and where they are, also everybody knows the direction of cotton prices. So yarn manufacturer can adjust your yarn price accordingly. But no longer does that have a lot to do with it. Now the global yarn market is driven by political factors, the cost of fuel, the cost of freight and just a whole range of factors that used to not come into play or, at least, not contribute significantly in the past.

Truly global yarn market

For example, if India is exporting yarn to Europe, and the demand suddenly drops, then the previously earmarked yarn can be sold to US at reduced price. Actually you don’t even have to sell it but only the threat of doing so can keep the American price in check. Early in 2011, when global cotton prices were at their peak and cotton was in short supply, India did not export any yarn. Then, when it became apparent that the cotton supply crisis was over, India began aggressively exporting cotton yarns to the United States. The problem though, was that Indian companies had lost their customer chain and the only way to get that back was to drop prices. They began selling yarn for $2.00 when the price of raw cotton was $2.00. It was a huge disruption in the market. There really wasn’t any way to compete with them. India, the world’s second largest cotton producers have already shipped a record 9.5 million bales, way above the governments’ estimations of 8.4 million bales. Hence, it actually led to a ban on cotton export to avoid depletion of domestic availability. On the other hand India has dragged both Turkey and Egypt to the WTO for imposing special import duties on Indian cotton yarn. Both countries imposed some safeguard duties as rising imports were harming the domestic industry. Turkey imposed safeguard duties between 12% & 17% and Egypt imposed a specific duty of 55 cents per kilogram of yarn imported from India. Bangladesh suffered mostly form the end of 2010 till the end of 2011 for the Indian above stated strategy. So it is obvious that overdependence on Indian cotton will not be good for Bangladesh in the future.

 India bans cotton export and then eases it partly
India banned all cotton export, and only after four days the order has been partially rescinded to allow the earmarked cotton cleared. Finally the ban order was rolled back on March 12. This panicking decision from the Indian government came from the fear that China was hoarding cotton in bonded warehouse. Actually China holds reserves estimated at around 15 per cent of the global requirement. More than 70 per cent of India’s cotton export goes to China that is roughly one-third of China’s yearly cotton imports.

China reacted sharply to the ban by India and termed it as an irresponsible decision and can disrupt the global market. A previous Indian ban on cotton export in 2010 had resulted in heavy losses for China as well as Bangladesh as the price of Indian cotton is lower than the US cotton. The average price of Indian cotton exported to China last year was $2.615 a kg compared with $3.000 a kg for US cotton.

Bangladesh garments industry as always faces difficulties when the region’s biggest supplier of cotton puts embargo. Bangladesh Commerce Secretary says, – “it is unfortunate, repeated restriction on cotton export is posing a threat to the garments industry. It is against the norms of international trade.” About half of the cotton used in the spinning industry of Bangladesh comes from India.

India clarified that they would  export cotton to Bangladesh on a government to government basis but on  commercial lines. Actually they are keeping Bangladesh in dark and pointing the  issues like using Bangladesh’s waterways, feasible transshipment and about  using Bangladesh’s port facilities. The detailed discussion on this issue has  been postponed and the two parties agreed to try and hold meetings at the  commerce secretary level on an annual basis from now on.

Actually frequent changes in export policy is hurting India’s credibility in overseas markets and leading to many disputes. Due to domestic pressure and international criticism eventually the ban was lifted partially and the earmarked shipments of the fiber were allowed. The Indian government may allow shipments up to 2.5 million bales of cotton which have been registered.

Initiatives from Bangladesh’s part
A delegation from Bangladesh visited India to discuss the ban on cotton as it still exists on new exports. The team met with officials from DGFT, CCI, Federation of Indian Chamber of Commerce and other bodies. Bangladesh emphasized that they would require uninterrupted export of at least 15 lakh bales every year. In this regard both sides agreed to sit for further discussion before end of May.

Bangladesh must come out from the Indian cotton reliance situation and look for other sources. It’s not that there is no other way, but proper regulation and lack of proper initiatives has not been taken for long to explore new cotton markets rather than India. The other possible sources may be Uzbekistan, other CIS countries, Australia and the African countries. Uzbekistan has been exporting a good amount of the demand now for a long time and it can be increased as they provide good quality. African cotton has more trash content but if the blow-rooms of the industry can be optimized accordingly, the African cotton can be fetched at lower prices than the others. Research should take place if it is possible to do the whole ginning process of African cotton here in Bangladesh to lessen the trash problem as well. It’s the over dependence on Indian cotton should be eliminated as they are no more a consistent and sustainable supplier.

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

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