Following the sharp rise in cotton prices, small and medium textile mills in Tamil Nadu (TN) with a capacity of up to 25,000 spindles have reduced production by about 15%-20% since the beginning of the month as losses continue to mount. Tamil Nadu textile mills account for about 46% of the total installed spinning capacity in the country.

Mills are losing about Rs 15 per kg on yarn. This has come even after two rounds of price increases by mills that resulted in yarn prices going up about Rs 20 per kg since April.

Prices of Shankar-6, the most popular cotton variety used by mills in TN, have zoomed 42% since the beginning of April and has crossed `49,000 per candy (a candy is 355 kgs) now. Prices have jumped by about Rs 6,000 per candy in the last ten days alone.

Interestingly, mills in the state have started importing cotton as prices are ruling lower in the international market. Since the cost of imported cotton is lower by at least Rs 2,000 per candy many spinning mills, including smaller ones with a capacity of 10,000 spindles, are importing cotton now.

K Selvaraju, secretary-general, Southern India Mills' Association (SIMA) said that clean cotton prices have gone up by Rs40-45 per kg since April. About 70 kgs of combed yarn is typically produced from 100 kgs of cotton.

According to S V Devarajan, former president, South India Spinners' Association, they are facing losses as cotton prices have skyrocketed leading to fall in capacity utilization by 25%-30% in some mills.

Textile mills typically operate at 90% capacity. Incidentally, mills in Andhra Pradesh have declared a one-day production holiday every week now. Smaller textile mills are not able to get credit for cotton purchases due to high prices, Devarajan said.

Textile mills in the country consume around 25 lakh bales (a bale is 170 kgs) of cotton per month. Mills in TN use about 10 lakh bales a month. With area under the crop declining on the back of a drought in Maharashtra and Karnataka and pest attacks affecting output in Gujarat, Punjab and Haryana, cotton production would fall to a five-year low of 352 lakh bales for the 2015-16 season, Cotton Advisory Board (CAB) estimated in February this year.

CAB, at the recent meeting held on Wednesday has pegged cotton production even lower stating that out output would be 338 lakh bales for 2015-16.