The government of India supports the jute sector through compulsory packaging of select commodities in Jute. In pursuance of the Jute Packaging Material (JPMA) Act, the Cabinet Committee on Economic Affairs has continued packaging of 100% of the production of food grains and 100% of the production of sugar in jute packaging material for the Jute Year 2011-12 (July 2011 to June 2012). However, the following exemptions were indicated:
(i) Sugar packed for export purpose but which could not be exported will be exempted from the operation of the Order on the basis of an assessment by the Department of Food and Public Distribution.
(ii) The following will be out of the purview of the above reservation:
(a) Sugar fortified with vitamins (b) Packaging for export of commodities (c) Small consumer packs of 25 kgs and below (d) Bulk packaging of more than 100 kgs
Indian jute mill sector is indicating that Jute Mills in Bangladesh enjoy competitive advantage due to relatively lower wages; lower power cost and substantial Government assistance. Further, the jute products continue to witness competition from cheaper synthetic products. Further, the vagaries of weather affects production of raw jute, which may drive up the price of finished jute. Bangladesh has relatively low cost, and unabated imports of all jute goods from Bangladesh to India have a dampening effect on prices of Indian jute goods and consequently affect margins of the domestic jute sector. Further, crisis in West Asian countries has resulted in serious reduction in Jute Yarn exports due to a contraction of the Carpet Industry in those countries.
Cheviot Company indicated that the domestic demand of jute goods was generally good. But jute yarn exports declined and prices became un-remunerative. The industry is utilizing the benefits under Jute Technology Mission to modernization and to develop infrastructure, which can improve the competitiveness of domestic jute industry, both in India, and abroad.
We find that the jute textile sector rejoiced fall in jute prices, which enabled it to report better growth in profits in the quarter ended June 2012. During this period, the jute yarn prices improved sequentially but remained lower on y-o-y basis. The players benefited from sequential rise in prices, and utilized low cost raw jute inventories built up earlier. With weakening of demand for carpets in the global markets, and the rise in raw jute prices, the jute textile sector appears to be heading for fall in profits, especially those without adequate raw jute stock of low costs.
In July 2012, raw jute as well as jute yarn prices has improved sequentially. But on y-o-y basis, while jute yarn prices fell 8%, the raw jute prices were higher by 11%. If this trend continues, we can visualize pressure on margins of jute yarn producers. However, players with adequate raw jute stock would rejoice, as on the one hand, they need not pay for increase in raw jute prices, and on the other can rejoice rise in jute yarn prices. So, the results for the quarter ending September 2012, will critically depend on the cost, and adequate availability of raw jute stock of the players, and their product and geographical mix of their revenues.
There is a proposal before the Government of India to resume Export Promotion Assistance Scheme (EMA) renamed as "Scheme to incentives Social and Environment Compliance in the Jute Sector. However, this scheme is yet to be implemented. The industry urges the government to expedite resumption of EMA scheme in some form or other to promote exports. If this is restored, then jute textile sector in general, and players with higher / rising share of exports in particular would benefit.
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