The operating profits of polyester yarn manufacturers are set to rise 15-20 per cent next fiscal because of a 150-200 basis points spurt in operating margins.
This stems from lower raw material prices, healthy demand for polyester, and higher blending in garments and other products, according to an analysis by CRISIL.
The raw material cost has started moderating because the coronavirus outbreak is likely to impact demand for polyester yarn in China, which accounts for about 65 per cent of the global demand, it added.
As a consequence, the price of purified terephthalic acid (PTA), a key raw material that accounts for more than half of the sale price of polyester yarn, is expected to be under pressure in the near term. Moreover, PTA capacities in Asia are set to rise by about 20 per cent over the next couple of years, which will keep prices in check, it said.
Add to that the removal of anti-dumping duty announced by the Indian government on February 2. In October 2013, the government had imposed a duty of $23-160 per tonne of PTA imported from various countries. This gave domestic manufacturers significant bargaining power.
The removal of duty will make India’s PTA imports (about 10 per cent of total PTA demand) cheaper by $25-30 per tonne, given more avenues for sourcing. Consequently, the input cost for polyester yarn manufacturers would be 3-4 per cent lower, with PTA prices seen down ₹2,000-3,000 per tonne, said the report.