Cotton textile exports have been sluggish for almost 18 months, cotton yarn exports have declined by 56 per cent year-on-year during April-September, Indian yarn is losing its competitive edge in global markets due to rising costs, power shortage Costs have increased, with import duty for fine yarn continuing at 11 per cent. Yarn Varieties Strong and flexible balance sheet promises hope in the year ahead
The troubles of the cotton textile industry, especially the spinning mills, are not likely to ease any time soon. On the contrary, the profitability of mills will continue to decline amid low demand and realizations on one hand and stable cotton prices on the other.
According to the South India Mills Association, southern mills, which account for about 55 per cent of the spinning capacity in the country, have been facing a prolonged slowdown for almost 18 months.
However, on an all-India basis, textile shipments declined marginally year-on-year (y-o-y) between April-October 2023. Within this, apparel exports declined by about 14-15 per cent during the period, raising concerns, especially as there was a strong surge in the year-ago period (October 2022 compared to 2021).
What's more, India's cotton yarn exports were down 56 per cent during April-September compared to the same period in FY 2021-22. The reasons are both external and internal.
Half of India's yarn exports (in terms of volume) are to China and Bangladesh. Gautam explains, “Due to the shutdown of the Chinese economy in FY2023 and lower cost competitiveness of Indian yarn in early FY2023 (as domestic cotton prices crossed international prices, making Indian yarn less competitive in the global market) Done), export volumes declined." Shahi, Director, CRISIL Ratings Ltd.
Additionally, global demand for textiles has remained weak, especially from high-consumption economies such as the US, UK and EU. Another war in the Middle East following the Russia-Ukraine war has also complicated supply chains and affected capital spending, jobs and consumption across countries.
India has been no exception. Job uncertainty along with inflation and high interest rates are partly why discretionary spending, including apparel, has declined over the past six months. Lower-than-expected growth in domestic demand for readymades during the recent festive season has raised concerns for mills.
Note that the industry is pushing for removal of the 11 per cent import duty imposed on cotton and expensive man-made fibers and filament yarns, which is further worsening end-user textiles like dresses, apparel and made-ups. Expensive and less competitive in global markets.
Other costs are also added to make cotton yarn expensive. Recently, SIMA reported that a steep increase in electricity tariffs has increased production costs. This is no surprise, given that electricity accounts for more than 40 percent of total manufacturing costs.
In such difficult times, the decline in cotton production estimates for cotton season FY2024 is not good news. Initial estimates point to cotton production at around 310 lakh bales, down from last year's around 337 lakh bales. (A bale of cotton weighs 170 kg). This may prevent cotton prices from falling further, which, along with electricity and other costs, could keep yarn prices high.
According to CRISIL, which analyzed around 88 yarn spinners, the operating profitability of cotton yarn spinners will fall by 250-350 basis points to a decade low of 7-8 per cent this financial year from 10-10.5 per cent last financial year. . (One basis point is one hundredth of one percentage point). Shrinking spread among cotton and yarn, inventory loss, weak downstream demand are the major reasons. “Revenue will also decline by 13-15 per cent due to lower receipts, even though volumes are expected to grow by 10-12 per cent this financial year on the low base of last financial year,” the report said.
However, what is helping the spinners is their relatively strong interest cover ratio after shrinking their balance sheet over the last three years. Most companies have also cut capital expenditure. Yet, it is only a pick-up in demand in global markets, which is so important for India's textile exports, that will help lighten the grim scenario.
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