The Domestic Textile Sector Is Gradually Turning Around

0
1166

The domestic apparel market is projected to grow by 10-12% in the current year (FY2020) in the wake of growth in the economy following the rise in disposable income, favorable demographics and growing share of working women in the country, says CARE Ratings in its recent report.

The rating agency states that the demand from downstream industry (apparels and made-ups) from both domestic and international markets, has only marginally picked up in the last few months, even as the industry is now stabilising post demonetisation and the implementation of the goods & service tax (GST) regime.

The report has projected that cotton yarn production in the domestic market will witness an increase of about 3-5% from current levels and reach 4,300-4,400 million kgs in FY2020.

This will happen despite high cotton prices and subdued domestic demand, on the back of higher demand from China, Bangladesh and Vietnam. Production of 100% blended and non-cotton yarns is expected to witness a stable growth of about 2-4% to 1,710 – 1,740 million kgs due to expectations of y-o-y lower crude oil prices as well as substitute cotton supply constraint in the domestic market.

Cotton yarn prices (40s) witnessed slower growth of about 3.8% y-o-y in FY2019 after increasing by over 7% for the previous two years. However, prices have started recovering on a month-on-month basis after witnessing stable growth in the last few months with growth in cotton prices. Also, polyester fibre and yarn prices have witnessed higher growth of about 18% in FY2019, while polyester blended yarn prices have witnessed only a marginal growth of about 7.4-7.5% y-o-y during the same period.

Also Read  H&M Reports 30% Jump In India Net Sales In First Half Of 2021

Therefore, operating margins of spinners, Care Ratings believes, will continue to remain under pressure in the short to medium term as the increase in cotton and blended yarn prices will be lower than the increase in cotton and MMF prices amidst weak demand in the country. Also, on the back of slower movement in yarn demand, the utilisation rates of the domestic spinners is expected to be lower which will put further pressure on the margins.

Cotton yarn prices are highly volatile due to volatility in the demand (depending on price of the substitute – synthetic yarn), which is majorly impacted by exports of cotton and cotton yarn. Also, any fluctuation in crude oil impacts the prices of the substitute man-made fibres and yarn. India exports around 15-20% of cotton and 30-40% of cotton yarn. “Therefore, even a minute change in the exports demand-supply scenario significantly impacts domestic prices and thereby the margins of the yarn spinners,” says the report.

Also Read  Why Modest Fashion Is Both A Movement And An Entrepreneurial Opportunity

Going forward, with crude oil prices expected to moderate in FY2020 on back of ever increasing US oil production and overall weak world economy on back of ongoing trade wars, the substitute manmade fibres prices are likely to be competitive in the domestic as well as international markets. Hence, Care Ratings’ expects the demand for cotton yarn to improve only marginally by about 3-5% during the upcoming season.

In FY2019, cotton yarn prices (40’s count) increased only by about 3.8% to Rs 270 per kg despite an increase of about 6-9% in cotton prices during the same period on account of weak domestic demand. Similarly, during cotton season 2019, cotton yarn prices increased only marginally by about 2% to Rs 272 per kg, while input material cotton price witnessed an increase by about 4-5% during the same period.

Going forward, as per International Cotton Advisory Committee (ICAC), China’s cotton consumption during cotton season 2019 is likely to be lower by about 14.6% at 8.5 billion kgs as against 9.2 billion kgs in cotton season 2018. However, on the back of falling stockpiles in China despite marginally higher production, cotton imports are expected to witness an increase from China for the year. This expected increase in imports is likely to benefit Indian exports during the year.

Also Read  Fabrocia Craftex Develops Plant Leaf Fibre In Its Varanasi Cluster

Also, in July 2019, MSP for cotton (medium and long staple) has been further increased by 2% and 1.8% for FY2020 and currently the prices stand at Rs 5,255 per quintal and Rs 5,550 per quintal, respectively. Therefore, CARE Ratings expects cotton prices in the domestic market to marginally pick up from the current levels and remain firm in the wake of strong exports along with tight supply in the domestic market and increased MSP by the government. Going forward, cotton prices are likely to register a growth of about 6-8% and average at about Rs 128 – 130 per kg for cotton season 2019.

LEAVE A REPLY

Please enter your comment!
Please enter your name here