Business Desk :
Withstanding price pressures, Cotton spinners in India are resorting to production cuts in the current financial year to sustain profit margins. Experts estimate an average production cut of 15 per cent for fiscal 2017-18, if the current scenario continues.
A recent study by Care Ratings estimates India’s cotton yarn production at 3,936 million kg for financial year 2016-17, nearly five per cent lower than 4,138 million kg output reported in the previous financial year. For the past few years, cotton yarn production has increased by 3-3.5 per cent to meet domestic demand and exports.
India’s cotton-spinning industry has been struggling with profitability for over two years due to a sharp decline in yarn exports following a slump in Chinese demand. Chinese textiles mills, which used to manufacture fabric after importing yarn from India, have now slowed down following the government’s policy of discouraging energy-intensive industries. This has hit India’s cotton yarn manufacturers hard.
While cotton prices have risen by eight per cent since January 2017 with the benchmark Shankar 6 varietycurrently trading at Rs 12,035 a quintal, overall costof production has also gone up by 8-10 per cent.
Over 5 per cent appreciation in the rupee over the past three months has also impacted exporters’ receivables proportionately.
A recent Care Ratings report, however, estimates a five per cent decline in India’s cotton yarn production for 2016-17 at 3,936 million kg as compared to 4,138 million kg for 2015-16. After declining by 10 per cent in 2011-12, cotton yarn production rose by over 14 per cent y-o-y to 3,583 million kg in 2012-13.
In 2013-14, production was up by about 10 per cent to 3,928 million kg. High cotton prices and easy availability of MMF (man-made fibres) at competitive rates led to slower growth of cotton yarn production, the report said.
Production volumes
Cotton yarn demand in India grew at a healthy pace in 2015-16, supported by domestic demand and yarn exports. In 2016-17, demand is expected to be sluggish as derived demand and direct yarn exports will be under pressure. Also, with alternatives being explored for crude oil such as shale, prices of crude oil are largely expected to be stable during the year. Hence, demand for cotton yarn is set to face stiff competition from its easily available substitute – man-made fibres (synthetic yarns).
The domestic spinning industry remains highly dependent upon exports, with a third of India’s cotton yarn having been exported during the past five years. Further, high dependence on exports to China and the resulting sensitivity of India’s exports to China’s policy on reserve cotton stock warrant a cautious outlook on India’s yarn exports, until Chinese cotton stock levels subside to historical average, points out Jayanta Roy, Senior Vice-President, and Group Head, Icra. The research agency said that as overall yarn demand is expected to remain tepid, spinners may have to sacrifice capacity utilisation or contribution, and hence profitability is likely to remain under pressure. In addition to demand pressures, the spinners continue to face challenges on account of the high cotton prices.
Withstanding price pressures, Cotton spinners in India are resorting to production cuts in the current financial year to sustain profit margins. Experts estimate an average production cut of 15 per cent for fiscal 2017-18, if the current scenario continues.
A recent study by Care Ratings estimates India’s cotton yarn production at 3,936 million kg for financial year 2016-17, nearly five per cent lower than 4,138 million kg output reported in the previous financial year. For the past few years, cotton yarn production has increased by 3-3.5 per cent to meet domestic demand and exports.
India’s cotton-spinning industry has been struggling with profitability for over two years due to a sharp decline in yarn exports following a slump in Chinese demand. Chinese textiles mills, which used to manufacture fabric after importing yarn from India, have now slowed down following the government’s policy of discouraging energy-intensive industries. This has hit India’s cotton yarn manufacturers hard.
While cotton prices have risen by eight per cent since January 2017 with the benchmark Shankar 6 varietycurrently trading at Rs 12,035 a quintal, overall costof production has also gone up by 8-10 per cent.
Over 5 per cent appreciation in the rupee over the past three months has also impacted exporters’ receivables proportionately.
A recent Care Ratings report, however, estimates a five per cent decline in India’s cotton yarn production for 2016-17 at 3,936 million kg as compared to 4,138 million kg for 2015-16. After declining by 10 per cent in 2011-12, cotton yarn production rose by over 14 per cent y-o-y to 3,583 million kg in 2012-13.
In 2013-14, production was up by about 10 per cent to 3,928 million kg. High cotton prices and easy availability of MMF (man-made fibres) at competitive rates led to slower growth of cotton yarn production, the report said.
Production volumes
Cotton yarn demand in India grew at a healthy pace in 2015-16, supported by domestic demand and yarn exports. In 2016-17, demand is expected to be sluggish as derived demand and direct yarn exports will be under pressure. Also, with alternatives being explored for crude oil such as shale, prices of crude oil are largely expected to be stable during the year. Hence, demand for cotton yarn is set to face stiff competition from its easily available substitute – man-made fibres (synthetic yarns).
The domestic spinning industry remains highly dependent upon exports, with a third of India’s cotton yarn having been exported during the past five years. Further, high dependence on exports to China and the resulting sensitivity of India’s exports to China’s policy on reserve cotton stock warrant a cautious outlook on India’s yarn exports, until Chinese cotton stock levels subside to historical average, points out Jayanta Roy, Senior Vice-President, and Group Head, Icra. The research agency said that as overall yarn demand is expected to remain tepid, spinners may have to sacrifice capacity utilisation or contribution, and hence profitability is likely to remain under pressure. In addition to demand pressures, the spinners continue to face challenges on account of the high cotton prices.
