Indian cotton prices to remain healthy in FY22: Ind-Ra

The prices of cotton in India are expected to remain healthy in FY22 with largely stable production, as per the latest report by India Ratings and Research (Ind-Ra). The report said that the domestic stock-to-use ratio, which remained around 84 per cent during the cotton season ended July 2020, may decline to 73 per cent for the season ending July 2021.

The US Department of Agriculture – Foreign Agricultural Service (USDA-FAS) expects the stock to use ratio to decline to 60 per cent on likely incremental consumption levels during the next cotton season ending July 2022 against flattish production, said Ind-Ra in the April 2021 edition of its credit news digest on India’s textile sector.

Cotton prices corrected during April 2021, led by a lower demand from mills operating under lower capacities on account of micro lockdowns domestically. The prices of Shankar-6 (medium staple) declined by 11 per cent month on month (MoM), it remained higher by 10 per cent year on year (YoY) on a lower base effect.

While USDA-FAS expects the domestic crop to increase by 2 per cent YoY in the next season commencing October 2021, consumption is slated to increase by 6-8 per cent YoY, leading to a reduction in ending stocks.

The marginal rise in production is despite an expected lower area under cultivation for the next season, albeit supported by a normal monsoon and increasing yield by 5 per cent to 497 kg per hectare. Furthermore, USDA-FAS expects cotton exports to increase by 0.5 million bales (480lb) to 6 million bales in the next cotton season, supported by lower domestic cotton prices.

The gross margins of cotton yarn prices are expected to remain healthy for spinners on the back of a supportive export demand coupled with a gradual improvement in domestic consumption levels. Furthermore, issues such as Xinjiang cotton could continue to support India’s healthy export levels, despite high cotton prices.

Cotton yarn prices, which had swelled over the seven months ending March 2021, witnessed a correction by 2-5 per cent MoM during April 2021. With the surge in cases and second COVID-19 wave, the demand remained lacklustre from spinning mills along with micro lockdowns and restrictions on movement. The exports were also disrupted during April-May 2021 on back of labour availability and logistical challenges, the report said.

Ind-Ra said in the report that it expects MMF prices, although dependent on crude volatility, to remain stable during FY22, given the improving demand from downstream segment. MMF production, although declined MoM, continued to recover on a YoY basis during February 2021, reflecting a healthy demand amid stable yarn prices. The prices of raw materials such as pure terephthalic acid and mono-ethylene glycol were higher on a YoY basis during April 2021, however, were 15-20 per cent lower on the trailing twelve months average.

The prices of downstream products yarn and fibre also declined in line with key raw material prices owing to a lower demand and disruptions with the second wave of infections during April 2021. However, with the fall in cotton prices during April 2021, spreads between cotton-polyester staple fibre declined 35 per cent MoM, leading to disruptions in switching demand from cotton. Polyester stable fibre exports improved 12 per cent MoM during February 2021, however, were 11.5 per cent lower YoY basis, the report added.

While the production of woven and blended fabrics declined during February 2021, that of knitted fabrics was flattish. The fall in demand due to a continuous rise in infections, closure of retail spaces, and lockdowns because of the second wave led to a plunge in the production of woven and blended fabrics production during February-March 2021. Furthermore, fabric exports fell during December-February 2021 by 16 per cent YoY.

The domestic apparel demand remained impacted by disruptions amid the rising presence of e-commerce sales, but the export of readymade garments surged during March 2021 by 25 per cent. Although a continued shift in global sourcing strategy provided an opportunity for Indian players with competitive abilities and healthy balance sheet liquidity, the total exports of apparels declined by 20 per cent to $12 billion in FY21.

A sustained demand and stable raw material prices of home textiles will lead to growth in exporters’ top line and bottom line. The home textile segment continued to exhibit demand resilience, led by the healthy supplies and strong balance sheet of key participants. While players reported a healthy rise in top line during FY21, operating margins were impacted during Q4 FY21 on account of an import duty on cotton along with uncertainty over Remission of Duties and Taxes on Export Products incentives.

Related Articles

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Latest Articles

News Updates

We send periodic News Updates to your email. Stay Updated!

Get Job Alerts / News via Email