The prices of textile products in India recovered broadly in June from the lows of April and May on account of the gradual resumption of operations, according to the June 2020 edition of India Ratings and Research’s (Ind-Ra) credit news digest on India’s textile sector. International cotton prices (US) continued to recover in June, after dipping in April.
With India cotton prices remaining stable in June 2020, Ind-Ra expects cotton exports to inch up due to a better pricing environment.
It is a stronger recovery story on the man-made textiles side, with crude oil prices continuing to increase after falling in April 2020. Drawn texturised yarn price needs a special mention, which increased June. However, on a year-to-date (YTD) basis, the price for imported purified terephthalic acid and mono-ethylene glycol fell, Ind-Ra said in a press release.
Fibre prices are steady, but yarn prices are weak, which will continue to pressure the margins of industry participants. Polyester staple fabric to cotton spread is the lowest since 2016; thus, the switching rates are likely to slow down a bit in the near term, it said.
While the upstream product prices recovered, the downstream products prices continue to struggle due to a low demand. Cotton yarn and blended yarn prices declined on a monthly basis. Cotton yarn exports increased to 30 per cent of the overall output in fourth quarter of fiscal 2019-20. Overall, spinners’ margins will remain under pressure with weak spreads on yarns while raw material prices may increase.
Reflecting the trends in the recovery of upstream products, fabric and apparel prices marginally improved across the knitted and woven fabrics, largely on blended or man-made side of the products. On the contrary, cotton cloth prices dropped in June 2020. Apparel prices improved due to a pent-up demand following the lockdown.
Exports of readymade garments declined substantially in March 2020. The export outlook is likely to remain weak. The agency expects demand for home textiles to gradually recover in the second half of fiscal 2020-21.
Several textile companies have increased their capacity use with the easing of lockdown restrictions since May 2020. The inventory pile-up, lower channel liquidity and labour migration in the context of subdued demand will continue to impact textile operations and exports in the second quarter of this fiscal.
Furthermore, the pick-up in domestic demand in June 2020 could only be a flash in the pan post the unlock and hence needs to see its sustainability. The extension of Rebate of State and Centre Levy of Taxes scheme has provided some respite to exporters. For this fiscal, the agency expects textile players to record a fall in their top line and drop in operating profits.
Ind-Ra believes there could be opportunities emanating from global retailers looking to diversify away from China. The segments to benefit are garments and home textiles.