ICRA expects the weak export demand and high cotton prices to hurt the profitability of domestic cotton spinners. While the commencement of the cotton harvest season has been accompanied by a softening of the domestic price, however, it remains 17% higher year-on-year, says an ICRA report.
According to the agency, the firmness in cotton prices is driven by a hangover of cotton shortage in India earlier in the year, slower cotton arrivals amid the demonetisation drive and uncertainty related to the extent of improvement in domestic crop-size against a backdrop of superior yields but lower sown area.
Besides, weakness in export demand poses challenges for the domestic spinning industry. Cotton yarn exports have been under pressure due to lower demand from China amid improved local mill usage, the report states.
According to Jayanta Roy, Senior VP and Group Head, ICRA, as the domestic spinning industry remains highly dependent upon exports, with a third of India’s cotton yarn having been exported during the past four years, the fall in export demand is a major challenge for the industry.”
The cotton yarn export quantity was 23% lower year-on-year during the seven months to FY17. The improved domestic mill consumption in China has reduced its dependence upon imports, adversely impacting yarn exports from India.
China’s yarn import quantity declined by 20% (year-on-year basis) during the seven months to FY17 with a steeper decline in imports from India, which have fallen by 54% year-on-year,” he said.
“While the impact of the steep fall in exports has been cushioned by an estimated recovery in domestic consumption from a four-year low growth in FY16, a sustained revival remains to be seen and will be challenging due to the adverse impact of the demonetisation on disposable incomes and hence consumer spending ”, Roy added.