From metals to crude oil to agricultural products, there are hundreds of raw materials that grease the wheels of world trade. Cotton price in Domestic Market and International Market are different and it is always fluctuating. After globalization as the yarn producers have both domestic and export sales, they have to face heavy competition in domestic market with importers and in the foreign market with other yarn export countries.
The textile industry is one of the leading sectors in the Indian economy as it contributes nearly 14 percent to the total industrial production. The textile industry in India is claimed to be the biggest revenue earners in terms of foreign exchange among all other industrial sectors in India. This industry provides direct employment to around 35 million people, which has made it one of the most advantageous industrial sectors in the country.
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“It’s been a very difficult problem from some time now. Because of the unpredictability of prices, the yarn prices have never been constant. Moreover spinning mills have to buy cotton in advance to run the mills smoothly so it is very difficult to cover the cotton at a particular price without knowing at what price the yarn will be selling. So things have become more difficult for every spinning mill and the market has not been much supportive as the demand has been low. With the international disturbances going on between China and US there have been additional problems. Because although it opens an opportunity for India, but it is still not clear how far it will be supporting India as a country as far business is concerned. In India also the production has not come out as expected. The crop that will come up will not be up to the mark. At the same time I think there is a solution coming up as for the trade issues are concerned. China will still become a buyer of US that much is sorted. So when that happens, cotton will be exported in good quantities. So the prices of cotton are not expectedly to come down this year. It will be almost as the same as the previous year. To combat the situation I think you have to move out from the basic products. If we keep on producing the same product, probably the price pressure will be always there and on top of that there will be a demand deficit. So the key is to come out from the completion of basic products and try to get into as much value added products as you can, which may not be 100% cotton but a combination of different fibers. That is what we are trying to do,” mentioned Subarata sanyal, Maral Overseas Ltd, Noida, UP.
On July 6, 2018, 25% border tax was imposed by the US on $34 billion worth of Chinese goods being imported into the US. China responded to this policy with a 25% tariff on $34 billion worth US goods like cotton linters, uncombed cotton and more. This move has surely resulted in initial, substantial fall in Asian markets.
Both the US and China are imposing tariffs on cotton. The impact of this move is going to have a wider macroeconomic impact on the industry. The trade war is going to create barriers to free international trade, which can be detrimental to the movement of their goods. Also, the costs of basic products including clothes are expected to go up. Moreover, as the supply chains around the world start contracting, the cost for everyday goods will go up for global consumers also.
This trade war has also given an opportunity to China’s Asian competitors like India, Bangladesh, Vietnam, Cambodia, and Pakistan to pick up their respective market shares in the US market.
China’s domestic cotton demands are growing, and so are China’s cotton imports. While the US is the world’s largest cotton exporter, followed by India. This tariff war hence will have direct implications on China’s raw material costs, and hence its finished product costs. But, this will also open India’s avenues of gaining more market share in China’s cotton imports. It will take India with the next 6 largest cotton exporters to equal the volume of cotton exported by the U.S. consumers around the globe should get ready to face higher apparel costs as a result of the two giants facing each other off in this trade war.
“It is almost like we are not doing business but playing poker. The fluctuations are so vivid that the productivity is almost zero. The market depends on the demand and supply and the demand is there so I hope there will be some consistency in 2019. This kind of fluctuations happens in time to time. Stability will come soon. If we look at the average rate of 8-10months then we can see there is not much to worry about. The only way to combat in my knowledge is to maintain stock level,” averred Sanjeev Malhotra, Ambika Knits Pvt. Ltd, Gurugram, Haryana.
This ongoing war has made a crucial impact on all the raw materials like crude oil which in turn took a toll on cotton prices as well. In past six months the market has seen a great fluctuation on cotton price. By the mid of 2018 the prices went too high to cost some small companies to shut down their doors.
There is limited option for India as the United States continues to remain the largest market for its textiles and apparel. It would be beneficial for both the government and entrepreneurs to make all efforts to widen India’s export market and reduce dependence on the United States. The earlier it is done, the better. But the task is not a cake-walk and might take years to yield desired results.
Reportedly in July, 2018, Indian apparel companies who already were grappling with a difficult retail environment faced new challenge i.e. steep increases in the prices for the raw materials they need to make their clothes. The apparel industry can’t do much to control commodities prices when they rise. Cotton has been rising because bad weather is reducing global supplies. However the rate came much down by the end of the year giving the industry a sigh of relief.
The historical distribution of commodity and cotton price changes has included some very extreme values, and additional research in several disciplines will be necessary if forecasts of such changes in the future are to improve.
“We are into Man Made fibers and for us the fluctuation in crude oil is very crucial. Last year the prices became so high that it immensely disturbed the business, up to the situation to close up the business even. The sales went really down. For this year also I cannot predict how the things are going to turn up. I am told that utter fall in economy and business like this comes every 10-15 years and it passes by also so one should not give up. So that’s what I am practicing. To combat the situation there is not much of a strategy. It’s more like to cope up through the situation with faith like you deal with any other problem in life,” said Sukhwinder Singh, Udey Udyog, Ludhiana, Punjab.
These current situations are making it clear that the Indian Cotton sector should focus on increasing its productivity, improving its quality, working on its contamination levels and diversifying its strength. Enhancing its product basket strengthening its downstream processing and developing value-added textile sectors such as technical textiles could offer near to long term benefits for India’s textile industry.