India Ratings and Research (Ind-Ra) has published the July 2021 edition of its credit news digest on India’s textile sector. The report highlights the trends in the sub-segments of the textile sector, including cotton, man-made fibres (MMF), yarns and fabric with a focus on commodity prices, imports/exports, production and recent rating actions.
Cotton Prices Soar High: Domestic cotton prices continued to surge during August 2021, led by a rise in international as well as domestic demand and reduction in stocks with the end of season. The prices of Shankar-6 (medium staple) increased by 7.2% month on month (mom), and rose 64% on year on year (yoy) because of the lower base effect. USDA-FAS expects the domestic crop yield to increase by 2% yoy in the season commencing October 2021. Ind-Ra expects the prices to increase in the near term and correct by end-2HFY22 with new cotton arrivals.
Stock-to-use Ratio Expected to Decline: Ind-Ra expects inventory levels to reduce for the current cotton season amid a strong demand. The agency expects the domestic stock-to-use ratio, which remained around 66% during the cotton season ended July 2021, to decline to 56% for the season ending July 2022. Incremental consumption levels are expected during the next cotton season against a marginal increase in production, as per USDA-FAS.
Cotton Yarn Prices Inch Up: Cotton yarn prices rose directionally in line with the rise in cotton prices in August 2021. Cotton yarn and raw cotton prices rose 4%-6% mom during August 2021. The export demand as well as demand from spinning mills has increased ahead of festivities in India.
Volatile MMF Prices: MMF product price movement in July 2021 improved with mid-stream and downstream products pricing rising amid volatile crude oil prices. MMF production rebounded after the uplift of lockdown restrictions in June 2021 due to a rise in demand. However, with the cotton prices soaring high during July-August 2021, the spreads between cotton-PSF have increased to an all-time high to INR61per/kg, which may trigger switching from cotton to polyester.
Fabric Demand Improves; Apparels Demand Declines: The production of woven fabrics remained subdued and substantially lower than the pre-covid levels in May 2021. However, as per the latest data of June 2021, the production of all the three types of fabrics - woven, knitted & synthetic - improved while knitted and synthetic surpassed the pre-covid levels.
Improved Apparel Production: Domestic apparel production index improved 277bp mom as of July 2021 due to export shipments and the gradual increase in domestic demand with the opening of retail space, although e-commerce sales are rising. The average realisation of ready-made garments was all time high in July 2021 on an mom basis.
Healthy Performance of Home Textile Players: Ind-Ra expects the demand momentum to sustain in select products with a positive consumer spending outlook in the key export markets. The Wholesale Price Index has remained fairly stable due to the pandemic equally impacting both demand and supply sides. However, product pricing on quilts weakened in July 21 compared to those of blankets, terry towels and other cotton printed made-ups.
Overall, India's textile sector has been recovering after the second covid wave in terms of the production. The domestic demand has been gradually improving with the uplift of lockdown restrictions and reduction in infected cases, along with demand from export markets. Spinners are benefiting with the rise in cotton and cotton yarn prices, while apparel exports are facing issues in logistics and shipments.
