How do local yarn mills respond to the continuous rise in Indian cotton prices?

Since late June, Indian domestic cotton prices have been on a continuous upward trend, with the price of cotton S-6, 29mm, rising steadily to a recent level of 57,100 rupees/candy (equivalent to approximately 13,390 yuan/mt). Over the past week, prices have been climbing at a daily rate of 200-300 rupees/candy. The current market attributes the primary reason for the rise in Indian cotton prices to the declining cotton inventories held by the Cotton Corporation of India (CCI), leading to tighter availability of high-quality, well-graded cotton in the spot market.

According to a knowledgeable executive from an Indian spinning mill, the rise in Indian cotton prices is mainly due to the fact that most cotton inventories are currently held by the Cotton Corporation of India (CCI), and they have a price sealing while selling. Recently, CCI's relatively low floor price and superior cotton quality have attracted strong bidding from buyers, leading to large-scale releases of CCI cotton stocks and continuously climbing transaction prices. Regarding the recent surge in local cotton prices, most mills believe it generally aligns with seasonal patterns. Typically, trading in the local cotton textile market begins to pick up gradually after mid-August and continues until around April of the following year. About a month after mid-August, the grand Diwali festival procurement season kicks in, gradually pushing cotton textile consumption to its peak. With accelerated sales of CCI cotton inventories, Indian cotton prices have entered a phase of rapid escalation ahead of this year's peak season.

However, judging from the price adjustment pace of downstream spinning mills, the overall increase in yarn prices has not kept up with the rising speed of cotton. A frequent exhibitor at the Shanghai Yarn Expo from India noted, due to the recent surge in local cotton prices, they have raised prices for certain yarn specifications. This has made it more difficult to align Chinese buyers' procurement needs with our offers. Another well-known Indian spinners in the Chinese market also increased its offer for ring-spun cotton yarn 16s from $2.25/kg to $2.30-2.32/kg. Yet, most Chinese buyers' target bids remain clustered around $2.25/kg, with some importers lamenting missed opportunities to procure at lower prices in early July.

In contrast, the Indian domestic market has shown greater tolerance for rising cotton and yarn prices. A merchant specializing in compact-spun combed cotton yarn in India frankly stated, even though Indian cotton prices have increased, buying interest remains steady. They emphasized the current low inventory levels of cotton in India and noted that the selling prices of their compact-spun combed yarn have been raised by 3-5 cents per kg-a relatively moderate increase overall. Currently, Indian open-end cotton yarn has seen the smallest price hikes, with some mills still accepting orders at original prices.

Thanks to the resilience of domestic demand, Indian spinning mills generally maintain relatively optimistic profitability. Most mills hold cotton inventories covering one to one and a half months of production, and they also achieved profits for a relatively long period in the first half of this year, which is much better than that of yarn mills in mainland China. Therefore, most small and medium-sized mills, especially those focusing on the local Indian market, are operating well, with some running at around 90-100%. For mills highly dependent on overseas markets, sales have declined to a certain extent recently after yarn prices rose, so they are more cautious about adjusting cotton yarn prices.

Although tariff negotiations between the Indian and U.S. governments remain ongoing-posing potential risks of further contraction in textile exports-Indian spinning mills remain optimistic about the approaching domestic peak season. The new Indian cotton harvest is expected to begin around October at the earliest. However, recent demands from Indian cotton farmers to raise import duties from 10% to 30% will likely prolong the tight domestic cotton supply in the short term. Historically, cotton prices still have room for further upside during this period. From the perspective of the Chinese market, if Indian yarn prices continue to rise in tandem with cotton costs, their competitiveness will significantly weaken compared to Xinjiang and Vietnamese yarn. This would undoubtedly further dampen demand for Indian yarn imports in the future.