Despite the lower than expected selling prices the polyester industry could be looking at another record year of production and demand growth. For the last two consecutive years the industry has seen a production growth at a 42 per cent compounded rate. Already in the first two months of the current year the industry is showing excellent growth rates.

For April 98 the YoY growth has been 22.5 per cent, while for May 98 the YoY growth ratehas been 34.3 per cent. The polyester filament yarn production has also shown similar growth rates. In April 1998 the growth rate was 38 per cent YoY while in May 98 that growth rate dipped to 29 per cent.

Though upbeat for the year, polyester fibre manufacturers have struck a note of caution. Export growth for the first couple of months of the current year has been robust (according to the Centre for Monitoring Indian Economy exports of synthetic fibre were up by 150 per cent for April; while textile exports as such have suffered) but growth in the domestic market is expected to be in the region of 20-25 per cent for the current year, which given the latest production growth is not very conducive to sustain increase in selling prices. PSF and VSF prices have already dipped by two to three percent in the first two months of 1998-99.

However once again the shift to viscose does not seem to have materialised (Grasim reported just a 2.9 per cent increase in production for the first quarter) and the threatfrom cotton may not be as foreboding as it seems. Domestic cotton prices have started declining in the first quarter; given the dip in export demand for Indian yarn.

The continued growth in demand in all categories of polyester products has come as a breather for units such as Indo Rama and also for smaller units such as Nova Petrochemicals (polyester filament yarn) but pressure is mounting from Reliance which has begun to increase its production. Only higher volumes can deliver polyester companies from falling profitability as it is unlikely that prices will improve. This has led PFY producers such as Nova Petro to increase their capacities further.

Higher volume growth has already propped up earnings of the company though the returns on capital are still far from acceptable as far as investors are concerned. And despite the growth shown and the fact that the company declared a maiden dividend of 15 per cent for 1997-98 investors have not taken to the stock, which has actually dipped by 40 per cent overthe last several months.

But the best prospects are reserved within the synthetic textile industry for viscose filament yarn and for Indian Rayon, the country's largest manufacturer of that product. Demand from the export market for polyester and viscose blended yarn (with a lower content of polyester) has ensured a steady increase in prices of VFY. This trend has continued well into the first quarter of the current year.

Cotton Textiles: Worsening situation

The demand that Indian cotton yarn has enjoyed from the international market was evident in the performance that many cotton export oriented units turned in last year. While cotton yarn exports continued to fetch higher prices in the begining of the current financial year overall exports are lower.

The cotton textile companies operating mainly in the domestic markets have suffered during the last one year due to the extremely high cotton prices; but yarn manufacturers and particularly the EOUs have done reasonably well.

But instead of beingupbeat there is a lot for the cotton yarn companies to worry about. For one, there was a marked slowdown in export growth particularly in the second half last year. Yarn exports were up by just 13 per cent as compared to a 45 per cent growth in the previous year. And though the performance of companies such as Maral Overseas, GTN Textiles and Malwa Cotton have been good for 1997-98 the markets have refused to take note of it keeping in mind the very bleak scenario for the current year.