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The prices of textile products in India gained traction in October, with an incremental and gradual demand recovery due to the festive season and unlocking. While cotton prices continued to gain by 2-4 per cent month on month (MoM) in October on account of the resumption in demand from the casual wear, knitted and home textile segments, they were lower by about 5 per cent year on year (YoY), according to the October edition of India Ratings and Research’s (Ind-Ra) credit news digest on India’s textile sector.

With the United States Department of Agriculture’s Foreign Agricultural Service (USDA-FAS) estimating a steady cotton production for the current season, it would lead to an oversupply in the Indian market, affecting prices further. However, the Cotton Corporation of India had taken steps to liquidate its inventory during July-September 2020 which would lead to a substantial lower inventory, Ind-Ra said.

Cotton yarn prices continued their recovery in October and remained stronger than blended yarn prices, on due to a higher demand from export markets. Large cotton spinners using the inventories purchased prior to COVID-19 have written-down/inventory losses during the second quarter (Q2) of this fiscal, which is likely to have affected the first half operating margins.

The smaller spinners, having lower cotton inventory and exposure into knitted casual wear, have reported a stellar performance for the second quarter over woven and blended segments, Ind-Ra said in a press release.

Yarn exporters continued to witness an uptick in demand during August, with production resuming to pre-COVID levels and flattish on YoY levels. Yarn exports in tonnage terms grew by 38 per cent YoY during August.

Ind-Ra expects it to have improved further during September-October. The recovery in yarn demand with unlocking and resumption of production by mills in neighbouring countries would lead to a rise in shipments.

Man-made fibre (MMF) prices fluctuated due to crude oil price volatility, with a lag during October by 2 per cent MoM. While imported purified terephthalic acid (PTA) prices fell by 2 per cent MoM following the crude oil price volatility partially, the domestic prices remained stagnant on the back of lower supplies.

Ind-Ra expects MMF volumes to take longer to recover than cotton/blended spinners on account of the domestic preference to cotton over MMF. The players should start benefitting from low raw material prices in the third quarter (Q3) of this fiscal; however, players with healthy liquidity have resumed to pre-COVID production levels.

Fabric and apparel prices declined during September-October, led by an oversupply and weak prices. While cotton knitted fabrics production remained at an all-time high of around 16.6 million tonnes during August-September on account of an increased export and domestic demand, cotton woven fabrics production remained weak.

Fabric exports recovered with over 24 per cent growth in August-September. Ind-Ra continues to expect apparel prices to remain benign in the second half of this fiscal to entice inventory liquidation. Fabric players reported substantial operating losses compared to readymade garment players due to the closure of retail stores, malls and would remain weak for the second half, given the social distancing and fear of a second-wave of pandemic.

Readymade garment players managed to partially recover in the second quarter, reporting a weaker performance on a YoY basis.

Home textiles players continued to witness a sharper recovery among textile segments during the second quarter of this fiscal, by being part of wellness and hygiene products. Wholesale price index levels for September remained steady compared to August.

Production levels of key players are running at pre-COVID levels and at cent per cent for key segments like spun-lace, wipes and rugs.

The rating 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. It expects the players to increase their already strong market share in terry towels and bed linens, led by supply chain diversification away from China.

Fibre2Fashion News Desk (DS)

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