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Ind-Ra reports rise in fibre production for Nov 2020

Dec 26, 2020
Ind-Ra reports rise in fibre production for Nov 2020

India Ratings and Research (Ind-Ra) has published the November 2020 edition of its credit news digest on India’s textile sector. The Ind-Ra report highlights the trends in the sub-segments of the textile sector, including cotton, man-made fibres (MMF), yarns and fabric with a focus on commodity prices, imports/exports, production and recent rating actions.

Strong Cotton Prices; Continued support from Cotton Corporation of India: The prices of textile products continued to gain traction in November 2020, led by a healthy festive domestic demand and an incremental export demand. Cotton prices inched up by 2-4 per cent on a month-on-month (mom) basis and were even higher on a year-on-year (yoy) basis during November 2020. The incremental demand from spinning mills coupled with a higher demand for cotton seeds amid a continued supply deficit led to the rise in cotton prices. Cotton Corporation of India continued their support in form of market procurement during the current crop season. The spread of international cotton over domestic cotton remained steady during October-November 2020.

Spreads to Expand despite Higher Input Costs: Domestic cotton yarn production continued to grow both mom and yoy at 3.3 and 2 per cent, respectively, on back of a high export demand. However, the increase in raw material costs was lesser than yarn prices, resulting in higher gross margins for sector players during 2QFY21-3QFY21. Exports increased substantially yoy in September 2020 and are likely to moderate during 3QFY21 upon the execution of winter season orders by key importers. The yarn sector will likely benefit from an improved competitive situation with consolidation in the sector because the liquidity crunch being faced by several small and mid-players.

Healthy Rise in Fibre Production, Delayed Recovery for Synthetic Players: Man-made fibre (MMF) production increased by single digit yoy during September 2020, on back of a recovering demand. The price of polyester staple fibre (PSF) rose 7 per cent mom, despite a fall in crude oil prices during November 2020. While the segment is witnessing a delayed recovery over 2QFY21-3QFY21, large players with a healthy balance sheet size have increased their exports, leading to a substantial rise yoy in export volumes during September 2020.

Spreads to Remain Steady: Cotton to PSF spread decreased by Rs 3/kg mom in November 2020, however remained higher by Rs 9/kg yoy. The lower spread was led by a higher-than-expected increase in PSF prices compared with cotton prices. The spread has thus supported polyester demand with a likely switch to MMF from cotton in the near to medium term.

Increase in Fabric Demand and Prices led by Festive Demand: Cotton cloth fabric prices gained momentum during October 2020, led by an incremental demand because of the festive season and opening of retail stores and malls; however, other fabric prices remained soft. The production of knitted fabrics and PSF/ viscose staple fibre remained marginally lower; however, that of woven fabrics improved 15 per cent yoy in September 2020, reflecting a gradual recovery. Fabric exports increased 13 per cent mom, while remaining lower 11 per cent yoy. Fabric players reported substantial operating losses compared to readymade garment players, on account of the closure of retail stores, malls during 1HFY21 and would remain weak for 2HFY21, given the social distancing and fear of a second-wave of pandemic.

Apparel Segment Shrinks, led by Subdued Domestic Demand: Wholesale Price Index for apparel prices remained weak during October 2020, led by a weak domestic demand and disruptions in exports. Ind-Ra continues to expect apparel prices to remain benign in 2HFY21, leading to inventory liquidation. While India’s apparel exports increased yoy during September-October 2020, it reduced 30% yoy in October 2020 on account of strained 1QFY21 shipments. The agency expects apparel and readymade garment exports to fall 22-25 per cent yoy in FY21.

Healthy Performance of Home Textile Players: Home textiles players continued to witness a steady recovery over October-November 2020, led by high hygiene and wellness consumption across the US and EU territories. Wholesale Price Index for October 2020 remained steady compared to September 2020’s. Players in segments such as bed sheets, towels, advanced textiles have reported capex to increase the operating capacity. The agency continues to expect a healthy and sustained demand improvement for home textile players in their export markets, led by the restoration of retail store inventories.

 

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