Post-pandemic, the Indian textile sector is now on a recovery path. However, the demand-price equation is suffering from an imbalance at many levels of this sector. Exorbitantly high cotton yarn prices are an area of concern for fabric and garments manufacturers. They hope that the prices will stabilise in the coming months due to increased production.
Since yarn prices are yet to adjust itself in the downstream industry, textile millers and garments unit owners are “not too anxious about obtaining stocks at the moment, “ Commodities Control said in its first of the three cotton special series report.
Moody’s Investors Service Company ICRA has revised the FY2022 outlook for the Indian textile sector to ‘stable’, the rating agency added that risks, however, remain given the nascence of recovery and the continuing impact of the pandemic.
“Indian as well as the global cotton output is expected to decline in CYG’21 (Global Cotton Year ending July 2021). As the demand is likely to rebound on recovery from the pandemic impact, cotton stocks are expected to decline. However, despite moderation, absolute cotton stocks as well as the cotton stock-to-use ratio are expected to remain high, owing to sizable carryover stocks brought forward from the previous year,” ICRA said in its report.
It is to be noted that the cotton textiles industry is witnessing a recovery in nearly a decade. The sector underwent particularly bad phase two years prior, i.e. even before the pandemic struck.
Meanwhile cotton yarn prices are expected to stay firm tracking the bullish trend in global cotton prices. The latest World Agriculture Supply and Demand Estimates Report by the US department of agriculture (USDA) points towards lower global cotton output and improved consumption for the 2020-21 crop year. Cotton output is seen dropping in the US as well in India, while cotton exports are seen rising in the latter. ICE cotton prices have travelled all the way from sub-50 cents to 82 cents level in mid-January.
This reflected in domestic cotton prices along with woven cotton yarn. The prices of the latter surged from Rs. 193.81 per kg in August 2020 to Rs. 267 per kg very recently in January 2021. That’s a rise of 37.7 per cent in less than six months, while the yarn prices have gained 10.23 per cent since last month.
Demand for domestic and international yarn and textile products has increased sharply. According to Texprocil, exports of cotton yarn, fabrics, and handlooms has surged over 14 per cent to Rs. 7,260 crore. However, on yearly basis, the exports have dropped for the three quarters of the current financial year by 4.89 per cent to Rs. 50,506 crore. It is to be noted that decline in the export number was restricted to months prior September 2020.
ICRA, in its report, observed that yarn output during corona-led lockdown had dropped by 76 per cent. However, with the improvement in domestic and exports demand, post May 2020, yarn production bounced back. Cotton yarn production during September-October 2020 witnessed a rise of 3-4 per cent year-on-year. Total output may have slipped by 35 per cent during the seven months of the current financial year, however it has picked up pace and indicates continued rise hereon.
