India Ratings and Research (Ind-Ra) has published the October 2021 edition of its credit news digest on India’s textile sector. The 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.

Cotton Prices Continue to Rise: Ind-Ra expects cotton prices to only moderately correct by end-3QFY22 with new cotton arrivals. This is because Cotton Corporation of India is expected to procure a minimal stock due to a high cotton demand in domestic as well as export market, creating a strong floor for the prices. Domestic as well as international cotton prices rose in October 2021, after a slight dip in September 2021. Despite new cotton arrivals with the start of a new cotton season, the prices rose due to a strong domestic as well as global demand coupled with a low opening stock globally for the season. The prices of Shankar-6 (medium staple) remained stable month on month (mom), but rose 53% year on year (yoy) because of the lower base effect. USDA-FAS expects the domestic crop yield to increase 2% yoy in the season that commenced from October 2021. Prices in China also shot up in October 2021 due to delays in new crops arrival, poor weather in key growing regions and supply chain constraints. 

Stock-to-use Ratio Expected to Decline:
Ind-Ra expects inventory levels to decline by end of the current cotton season with the lower opening stock and a strong demand. Incremental consumption levels are likely during the current season against a marginal increase in production, as per USDA-FAS. Similarly, the domestic stock-to-use ratio is expected to decline in the new cotton season. 

Cotton Yarn Prices Increase:
Ind-Ra expects cotton yarn and spurn yarn prices to continue to rise in the short term due to a higher demand from downstream players as well as export markets. Cotton yarn prices increased 5%-8% yoy in October 2021 due to a rise in cotton prices as well as a reduction in production amid the high export and domestic demand. The spreads (cotton yarn - raw cotton) declined up to INR10 per kg in October 2021; however, it is likely to improve in the near term due to the expected correction in cotton prices because of an improved supply outlook for the current harvesting season globally. 

MMF Prices Rise:
MMF product price movement in October 2021 improved with rising mid-stream and downstream products pricing amid volatile crude oil prices. MMF production remained stable owing to the slowdown of operations due to China’s festive season. During October 2021, the prices of raw materials such as pure terephthalic acid improved by 7% mom due to the rise in crude oil prices. The prices of mono-ethylene glycol increased 6% mom, owing to the cap of coal prices. While those of downstream products such as yarn and fibre prices remained volatile as the prices for polyester-oriented yarn, drawn texturised yarn fully drawn yarn and polyester staple fibre improved in October 2021. Polyester viscose price shot up to an all-time high level of INR197/kg, up 11% mom, in October 2021 due to a sudden demand for suiting and shirting amid supply constraints from import sources, strong export demand and an increase in input costs. 

Fabric and Apparel Demand Improves:
The production of all the three types of fabrics - woven, knitted & synthetic – continued to improve as per the latest available data up to September 2021, and surpassed the pre-covid levels. Whereas the prices improved for cotton hosiery, knitted as well as polyester fabrics. The agency expects the prices to improve further with a rise in the export demand and domestic demand due to the ongoing festive seasons as well as reopening of schools and offices with the rise in vaccination rates. 

Improved Apparel Production:
Domestic apparel production index improved 405bp mom as of October 2021 due to increased export shipments and domestic demand due to supply chain mismatches. The average realisation of ready-made garments increased 2% mom basis in October 2021. 

Healthy Performance of Home Textile Players:
Wholesale Price Index and the pricing of all products remained stable in October 2021. The demand momentum sustained for all products in the export market because of improved consumer spending. 

Source: Centre for Monitoring Indian Economy, Textile Ministry, Index Mundi, NSE; Central Statistics Office, Cotton Association of India; Bloomberg; Ace Equity; Cotton Corporation of India; USDA-FAS

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