Soaring Cotton Prices Have Damaged India'S Yarn Mill Profitability.

When India

The factory is happy for five consecutive good quarters, and cotton prices soar, which is bound to damage the interests of spinning mills.

Domestic cotton prices have risen 61% since the beginning of October 2009.

The cost of cotton accounts for 70% of the total cost of the spinning mill, so the spinning factory is in a state of distress.

In addition, because the textile company refuses to buy yarn at high price, the spinning mill can only raise its price by 37-40%.

This means that the profits of the spinning mill are squeezed.

In the quarter ended in June, the performance of the spinning mill, which suffered great losses in the 2008 economic collapse, has improved.

The main spinning enterprises, such as VARDHMAN Textile Co., Ltd., Alok Industrial Co., Ltd., AMBIKA cotton spinning mill and KPR Muller Co., Ltd., grew by more than 25% over the same period last year.

The operating profit margin (OPM) also increased by 200-300 basis points, resulting in an increase in net profit.

One base point is one percent of a percentage point.

Now, the situation has become very serious.

S.P. Oswal, chairman of VARDHMAN group, said that in June -7, textile mills agreed to reduce yarn prices to 170 rupees / kg, while cotton prices were generally 29000 rupees / Candy.

After that, cotton prices rose by 27% to 355.5 rupees / kg.

In addition, most spinning mills have only one month's cotton stocks, and they have

The contract is longer and the price is lower.

The only hope is that cotton prices will fall back.

But this seems unlikely.

The International Cotton Advisory Committee forecast last month to cut 1 million 300 thousand tons of global cotton output in 2010-11 years.

Floods occurred in Pakistan, the world's fourth largest cotton producer.

In recent years, China has encouraged grain production and reduced cotton planting area.

Only cotton in the United States may make up for cotton production, because US production is expected to grow by 50%.

With the increase in cotton consumption, global cotton inventories have dropped to 1989-90 years.

Back in India, cotton production in India is likely to grow by about 10% to 570 tons.

However, because no restrictions on exports, global prices are very attractive, and 2/3 of India's cotton may export.

Cotton traders are the biggest beneficiaries of price increases. They expect prices to continue rising and hoarding cotton.

In addition, spinning is an electric and labour intensive industry.

The cost of these two aspects is rising.

Analysts say that most small and medium enterprises have only 2/3 of interest and pre tax profits.

From the investor's point of view, the profitability of the spinning company may reach its peak in the quarter ending September.

Although revenues may increase, profitability will be challenged.

only

When prices stabilize, the game is unlikely to change.