Uncertainty looms over textile export market amid trade tensions, weak domestic demand

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Cotton yarn prices were strong, but blended yarn prices were weak/flattish, in September 2020, on account of a demand recovery globally

The prices of textile products remained steady in September 2020, post-unlocking and with a gradual recovery in demand, said a report.

While cotton prices gained marginally at 2 percent month on month (mom) in September 2020, on account of the resumption of mills and unleashing of pent-up demand, they were lower by over 10 percent year-on-year (yoy), said India Ratings and Research (Ind-Ra) in its report.

As per USDA-FAS report, cotton production for the season October 2020 to September 2021 is expected to remain steady at around 29.4 million bales (1 bale = 480lb; October 2019 to September 2020: 29.3 million bales), as against a weak domestic consumption outlook as well as uncertain export demand. Cotton Corporation of India has been offloading its inventory by way of G2G transactions to a Bangladesh state-owned entity.

Cotton yarn prices were strong, but blended yarn prices were weak/flattish, in September 2020, on account of a demand recovery globally. However, supplies outpacing demand could pressure the prices in 2HFY21. Furthermore, cotton spinners using the inventories purchased prior to COVID-19 would record write-down/ inventory losses during 2QFY21, which is likely to have impacted their 1HFY21 operating margins, said the report.

Yarn exporters also witnessed an uptick in demand during July-August 2020 with production resuming to pre-COVID levels while remaining 3.5 percent yoy lower. However, it is likely to have improved yoy in August-September 2020.

The recovery in yarn demand with unlocking and resumption of production by mills in neighbouring countries led to a rise in shipments. Ind-Ra monitors the developments on extension of Withhold Release Order regarding Xinjiang related cotton products and consequent impact on demand for Indian yarns.

Cotton to polyester staple fibre spread increased in September 2020 over June 2020, owing to the rise in the cotton prices. This has thus supported polyester demand with a likely switch to MMF from cotton in the near term.

Fabric and apparel prices to have continued to decline in August-September 2020, led by a quick supply restoration amid a weak demand recovery, said Ind-Ra report.

While cotton knitted fabrics production remained at an all-time high during August 2020 on account of increased demand from Bangladesh and other export markets, cotton woven fabrics production remained weak. Fabric exports have started recovering beginning July 2020 to pre-COVID levels. Ind-Ra continues to expect apparel prices to remain benign in 2HFY21 to entice inventory liquidation.

Total textile and apparel exports declined 26 percent yoy, while exports of readymade garments was down by 14 percent yoy during August 2020.

Man-made yarn/fabrics/made-ups exports remained weak in August 2020 and also were down by 24 percent yoy. However, a few players with healthy liquidity and available capacities have grown their order book from customers looking to diversify away from China.

Image credit: GST Station

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