Synopsis:
- In FY22, Indian cotton yarn manufacturers achieved record-high profitability due to strong demand, lower domestic cotton prices compared to international prices, and the USA’s ban on cotton products from China’s Xinjiang region, which redirected some demand to India.
- However, the industry faced several challenges in FY23. These included the disparity between domestic and international cotton prices, a decline in global demand due to high inflation and recessionary pressures in developed economies, and increased energy and supply chain costs. Consequently, India experienced its lowest cotton yarn exports in a decade, leading to a decline in sales volume and a contraction in the operating profitability margin for cotton yarn spinners in FY23, which remained below the historical average.
- While challenges are expected to persist in H1FY24, there are positive indications for the demand of Indian cotton yarn in H2FY24. Factors contributing to this improvement include the alignment of Indian cotton prices with international prices, a shift in demand from competing nations, gradual recovery in demand from China following the relaxation of its zero-covid policy, and a rebound in global demand from downstream industries.
- Indian cotton yarn industry is likely to witness 5-7% growth in sales volume, while the operating margin is expected to expand by 100-150 bps in FY24 over FY23.
