On the international front, the outbreak of COVID-19 is expected to keep the textiles demand under pressure in China, thus hurting the Chinese cotton yarn and polyester markets.
The export scenario of the Indian textiles industry remains weak. In addition to this, spread of COVID-19 will further aggravate the industry’s difficulties. The pandemic has disturbed the demand-supply situation of the textiles industry.
The demand for textiles will face headwinds in both the markets, domestic and international. The closure of retail stores and malls on account of lockdown situation across the nation will affect the industry’s sales. Even after the lockdown is lifted, demand for textiles will take time to pick up. This is because footfalls will be low in malls and retail stores as people will avoid visiting crowded markets, said a Care Ratings note.
On the international front, the outbreak of COVID-19 is expected to keep the textiles demand under pressure in China, thus hurting the Chinese cotton yarn and polyester markets. China is the largest export destination for India’s cotton yarn outbound shipments. Therefore, muted demand from China is likely to affect India’s total cotton yarn outbound shipments and the export unit realisations and the domestic prices. This, in turn, will soften the cotton prices in India to an extent. Also, international cotton prices are expected to be under check due to the global demand-supply disruptions caused by the virus, the ratings agency note said.
China’s (the largest polyester market) subdued polyester demand is likely to influence the prices of key raw materials PTA and MEG. This is expected to result in moderation of PTA and MEG prices. Also, fall in crude oil prices will soften the prices of PTA and MEG. It is to be noted that the anti-dumping duty on PTA was abolished in the Union Budget 2020-21 to provide easy access to the raw material at competitive prices.
In addition to the above mentioned segments, the outbound shipment of RMG/apparels (the largest segment in India’s total textile exports) is also expected to take a hit. This is because India’s export scenario remains depressed for the top export destinations – European markets, including the UK and the US (together they account for about 60% of the total apparel exports) – given the spread of COVID-19 in these markets and the lockdown situation there.
According to the note, the demand distortions will hurt the domestic textiles production as well. Cancellation of export orders has led to build-up of inventories with the textile companies. Also, unsold stock with the industry players may soon run out of fashion for the next season which will add to the industry’s burden.
Given the unfavourable demand scenario, textile firms may not utilise their full capacities or may undertake production cuts, thus bringing down the overall output of textiles during FY21.
Care Ratings further said that in addition to this, labour disruption (many labours have migrated to their hometowns) will also affect the total textile production numbers as textiles industry is a labour-intensive industry.
Going forward the textile industry scenario will depend on how the situation evolves in the domestic and international markets and faster return to normalcy will enable the industry to curtail the damages and improve on its growth prospects.
In the medium to long-term, some demand from the US and the EU markets is expected to shift (though gradually) from China to other major garment manufacturers viz. Vietnam, Bangladesh, India and Combodia, as the customers will like to decrease their dependence on China, the note pointed out.