Cotton yarn output to go up marginally, demand to improve: Care Ratings

By: |
Published: December 13, 2019 2:51:46 AM

After remaining largely range-bound in FY18, cotton yarn production in India saw a 3% growth y-o-y in FY19. Cotton yarn production stood at 4,182 mkg during FY19.

Cotton, Cotton yarn, Care Ratings, market news, Cotton yarn productionDuring H1FY20, cotton yarn prices (cotton hank yarn 40s) witnessed a marginal uptick of about 2.7% y-o-y and averaged at Rs 274.7 per kg on back of increased raw material prices in the market.

India’s cotton yarn production is expected to remain largely stable at current levels and increase only marginally about 1.5-2.5% to reach 4,200-4,250 million kilogram (mkg) in FY20, despite high prices of the fibre and subdued demand, on back of higher demand from Bangladesh and Vietnam.

The 100% blended & non-cotton yarn production is expected to witness a stable 2-4% growth to 1,710-1,740 million kilogram (mkg) on back of expectations of lower crude oil prices on year-on-year basis as well as marginally higher prices of substitute cotton in the domestic market, said Care Ratings in its analysis.

After remaining largely range-bound in FY18, cotton yarn production in India saw a 3% growth y-o-y in FY19. Cotton yarn production stood at 4,182 mkg during FY19. Overall export demand for cotton yarn remained strong during FY19 on account of high demand from China, coupled with competitive prices in the international market. However, domestic yarn demand continues to be sluggish with substitution taking place from manmade fibres (MMF).

During H1FY20, cotton yarn prices (cotton hank yarn 40s) witnessed a marginal uptick of about 2.7% y-o-y and averaged at Rs 274.7 per kg on back of increased raw material prices in the market. However, yarn demand for domestic players remained subdued in the export market during H1FY20, owing to higher domestic cotton prices compared to international prices of the fibre. Also, demand from China remained weak on back of free trade agreements with Pakistan, which competes directly with India’s cotton yarn, the analysis said.

During FY19, as much as 35-40% of the total cotton yarn were exported to China (465 million tonne), followed by 18% to Bangladesh (225 million tonne), 5% to Pakistan (61 million tonne) and Egypt (58 million tonne) each and 3-4% to Vietnam (43 million tonne). India imports only 5-7 million tonne of cotton yarn primarily from China, Vietnam, Indonesia and Sri Lanka.

Cotton yarn demand in India remained sluggish during FY19 at 2,933 mkg, registering a decline of 1.4% y-o-y, after increasing 3.9% during the same period last year. However, export demand saw a strong double-digit growth of 14.7% y-o-y and stood at 1,261 mkg after dipping 8.8% in FY18.

With the industry stabilising after demonetisation and the goods and service tax (GST) implementation, the demand from downstream industry — apparels and made-ups — has started to marginally pick up in the past few months and is expected to witness a 10-12% growth y-o-y in FY20 on back of rise in disposable income and increased usage of plastic money.

Also, Chinese yarn manufacturers have set up operations in Vietnam. Despite this, India is expected to continue being the largest exporter of cotton yarn in the world, the ratings agency pointed out.

Going forward, with crude oil prices expected to moderate in FY20 on back of increasing US oil production and overall weak world economy on back of ongoing trade wars, the substitute MMF prices are expected to be competitive in the domestic as well as international markets.

Hence, Care Ratings expects demand for cotton yarn to improve only marginally by 3-5% y-o-y during the coming season. However, cotton yarn demand will be closely monitored due to China’s policy and diminishing stockpiles as well as volatile crude oil prices that impact the prices of its substitute — MMF (synthetic yarns).

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Next Stories
1Oil market still unbalanced despite OPEC+ cuts, warns IEA
2Gold prices jump by Rs 71; silver trades higher too
3Oil prices gain as OPEC revises deficit forecast