A global recessionary trend and a steady rise in raw cotton prices are expected to bring down cotton spinners’ margins by 5-7 per cent this fiscal .
The decline in margins will, however, be restricted by higher production expected in the new season that started in October. Higher output could lead to lower prices, said CareEdge Ratings.
Further, yarn exports in the second half of this fiscal are expected to remain muted due to weak demand, it said.
Cotton yarn exports declined by 59 per cent in the first half of this fiscal to 2.89 lakh tonnes, against 6.95 lakh tonnes logged in the same period last fiscal, and are expected to dip 28-30 per cent in this financial year.
Though raw cotton prices cooled down to Rs 65,000 per candy in October, as against a peak price of Rs 1.10 lakh per candy, the rates are still higher than pre-Covid levels.
Arti Roy, Associate Director, CareEdge, said spinners’ margins are expected to decline by 5-7 per cent due to lower capacity utilisation and high raw cotton prices.
India produces about 350 lakh tonne of cotton yarn per annum, second only to China. Of this, 60-65 per cent is consumed domestically, while the rest is exported.
Cotton production in India has dropped from 352 lakh bales in 2020-21 to 315 lakh bales in the 2021-22 season. Low cotton production pushed prices, eroding India’s competitiveness compared to competing countries such as Vietnam and China.
Further, cotton prices in India remained 20-25 per cent higher than international prices. The domestic price of cotton medium staple increased by 39 per cent to Rs 154 per kg from ₹110 per kg (medium staple), after recording a peak price of more than ₹1.10 lakh per candy during FY22.
CareEdge believes prices will moderate further with higher arrivals expected in the coming months.
Bangladesh has been the largest importer of cotton yarn from India, even as China’s share has been declining. China’s yarn imports have shifted to Vietnam over the years. Countries such as Bangladesh and Vietnam continue to enjoy duty-free access in China, the largest cotton yarn importer globally.