Slow growth in domestic consumption and exports will pose a challenge for profitability of spinners if the demand growth remains muted in FY2017, says ICRA in its research update on Indian Spinning Industry.
High dependence on exports to China and resulting sensitivity of India’s exports to China’s policy on reserve cotton stock has always warranted a cautious outlook on India’s yarn exports, says the report.
According to Mr. Anil Gupta, AVP, Corporate Sector Ratings, ICRA Ltd, “The slow pace of growth in spun yarn production has been driven by factors like tepid domestic consumption and limited growth in exports. With cautious outlook on cotton yarn exports, domestic demand growth will determine the production growth going forward”.
As per ICRA estimates, the domestic consumption growth for FY2016 is expected to be ~1.4% (~7.6% in FY2015) for cotton yarn and 3.1% (~6.3% in FY 2015) for spun yarn. This is the lowest level of domestic consumption growth since FY2013. The growth in cotton yarn exports has also been slow with exports of ~1,302 million Kg in FY2016E, which reflects ~3.7% growth (47.5% and 18.3% growth witnessed in FY2013 and FY2014).
In terms of cotton yarn production growth, Industry has witnessed slowest pace of production growth in FY16, which is estimated to have grown by ~2.0% to ~4,136 million Kg and is lowest in last four years. Cotton yarn production had grown by 14.6%, 9.6% and 3.2% in FY2013, FY2014 and FY2015 respectively.
Since cotton yarn accounts for 3/4th of India’s yarn production, , India’s total spun yarn production has also emulated this trend with a ~3.2% growth in FY2016 vis-à-vis 11.3%, 9.1% and 3.4% growth in FY2013, FY2014 and FY2015 respectively, which is also the lowest in last four year. In ICRA’s View, the marginally higher growth in total spun yarn production compared to cotton yarn production in FY2016 reflects an increased share of manmade/blended spun yarn aided by enhanced competitiveness of polyester fibre, given the sharper decline in polyester prices compared to cotton prices.
Slow growth in domestic consumption and export is leading to lower growth in production and will if demand growth remains muted in FY2017, maintaining the capacity utilization and profitability can be a challenge for the domestic spinning industry.
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