- 23 Jun 2022
- ICICIdirect Research
COTTON SHORTAGE, HIGH PRICES NEGATIVELY IMPACTING COTTON YARN UTILISATION LEVELS
News: As per media reports, limited availability of cotton has led to majority of ginning and pressing mills across India halting operations till fresh cotton crop arrives in the market in October this year
Views: As per Cotton Association of India, there are nearly 3,500 ginning and pressing units across the country. Currently, only 5-7% are operational as cotton prices are extremely high in the domestic market. Ginners sell their end products to spinners. Cotton spinning mills’ consumption has drastically reduced by 30-35% from as high as 2.9 million bales (170 kg per bale) to 2.2 million bales monthly signifying lower capacity utilisation for cotton yarn spinners owing to lower availability of cotton and elevated cotton prices. From our coverage universe, we believe current high cotton prices would lead to lower utilisation for Vardhman Textiles and would negatively impact volume growth for the company along with pressure on margins and profitability in the near term
Impact: Negative