Spinning mills have had an extraordinary year this fiscal, getting a higher price for yarn spun from cotton inventories bought at a lower price. But after the windfall, the operating margin of spinning mills are expected to come under pressure next fiscal as they may not be able to pass on the higher cotton cost to fabric and garment makers.
Domestic cotton prices, after looking to soften around Rs 56,000 a candy (of 356 kg), are ruling at Rs 60,000-60,500.Most spinning mills have procured three-fourths of cotton required for next fiscal at a higher price that may average 80 per cent higher at Rs 140 a kg for the remaining period of this cotton season (October-September).
The increase in cotton prices this season will push up spinners' procurement cost by 30-35 per cent for 2011-12 fiscal. In contrast, cotton yarn prices will rise about 20 per cent in the same period, with domestic fabric producers likely to resist any sharp spike in prices.
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