Cotton prices continued to decline in August, mainly due to a fall in international prices. India Ratings and Research (Ind-Ra) expects the prices to fall further as global production is likely to be higher than the growth in demand.
Rating agency Ind-Ra in its August 2019 edition of credit news digest on India’s textile sector highlighted the trends in the sub-segments of the textile sector, including cotton, man-made fibres, yarns, fabric with a focus on commodity prices, imports/ exports, production and recent rating actions. “With local prices (MSP) being higher than international prices, cotton imports are rising. Till 31 August 2019, the import of cotton was 2.3 million bales, up 0.8 million bales than recorded in the previous cotton season. This would further reduce domestic cotton prices,” a release from the agency said.
The release added, “Cotton yarn continues to see reduced exports owing to low demand and increased competition. Exports fell 40% month-on-month (MoM) during July 2019, majorly due to an 80% year-on-year (YoY) fall in demand from China. China has entered into second phase of free trade agreement with Pakistan on goods worth US$ 64 billion and its cotton yarn directly competes with India’s.” Man-made fibres saw second consecutive month of stabilisation on stable crude prices in August 2019, however, the instability in prices in September with an attack on Aramco, Saudi Arabia created pressure on margins of synthetic fibres for some time. The prices have corrected 20% subsequently with a positive news of fast recovery of the attacked sites. There is a moderate recovery in apparel exports with the demand stabilising from the US. The US-China trade war seems to have no major impact as apparels exported by China for July were 35% higher than those in the previous month. India is yet to see any benefit of the trade war, as exports increased by only 10% MoM in July.
“Capital expenditure in textiles has been majorly to replace machines with new technologies and add premium/niche products in the existing line-up. Outstanding projects have outpaced the completed ones, owing to muted demand, volatility in cotton prices and the US-China trade war,” the release mentioned.