Cotton yarn prices in India have been trekking northwards post the strict lockdown restrictions during COVID-led pandemic. However, the textiles industry along with the market participants now keenly look forward to the price outlook. So far, experts’ view suggests that domestic cotton/yarn prices are closely tracking global cotton price trends.

“Upward price trend in international cotton is underpinning domestic cotton rates. However, if the global prices stabilise post March, as widely believed, yarn prices will ease too,” Commodities Control said in its second of the three-part cotton special series report.

Cotton yarn prices are seen cooling off, as the mills that were forced to shut during pandemic resume operations, raising production that will ensure smooth supplies, the report added.

Market stalwarts observe that a cool-off in cotton/yarn prices is desirable in order to restore equilibrium in downstream industry and to bring various sectors of textiles back in balance. This, they believe, could take around 3-4 months.

Economic activity has picked pace after the lockdown restrictions were lifted, due to which robust demand for garments—casuals and knit wear—has been registered from rural India. Increased demand for cotton yarn, while the supply shortage with spinners reducing yarn output, has led to skyrocketing yarn prices, for all the categories.

The price per kilogram (kg) of woven cotton yarn increased from Rs. 193.81 in August last year to Rs. 267 in January this year—a 37.7 per cent rise. Indian cotton year extends from October to September.

The prices in September, October, November and December were Rs. 205.23, Rs. 210.45, Rs. 235.10 and Rs. 242.22 respectively. The January 2021 price is 10.23 per cent more than the price in the previous month.

According to a report by Fibre2Fashion, the sharp rise in cotton yarn prices in the last few weeks is because of dried-up inventories as supplies have failed to match demand and spinning mills resumed operations late across the country.

Cotton yarn price has risen because of high domestic and export demand. Huge orders are coming in from Bangladesh and Vietnam.

Firmness in the domestic market is attributed to significant price rise in global markets, where ICE cotton futures has surged nearly 20 per cent since December. Strength in global cotton prices is due to anticipation of lower world cotton output and improved stock-usage ratio. This goes to prove that cotton yarn prices will cool off only when cotton prices halt.

However, fundamental and technical cues point towards extended price rally, wherein ICE cotton active futures is seen reaching 85 cents/per lb in the near future. While March futures is hovering around 81 cents, May futures has moved past 82 cents per lb. So far, market experts see a strong resistance at 85 cents level from where ICE cotton futures rates are likely to cool off a bit.

Cotton yarn industry in the country is trying to get back on track, although the pace is too slow at the moment. Spinning mills were the worst hit amid lack of fiscal support. Most of the mills had to shut down their operations.