According to a recent analysis by foreign industry organizations, the current operating rate of Indian textile companies is average and the weakening cotton price has stagnated cotton yarn prices, and there is not much hope for future cotton yarn sales.
The rise in cotton prices in India in the first half of fiscal year 2017 has put tremendous pressure on textile companies. However, in the past two months, good monsoon rains in India, the expansion of cotton planting area and the expected bumper yield of new cotton are expected to improve the financial situation of textile companies. improve.
From April to November 2016, the spot price of S-6 in India soared from 90 rupees/kg to 140 rupees/kg. Reduced domestic cotton production and tight inventory stimulated a surge in cotton prices. At the same time, the decline in China’s cotton stocks also provides support for cotton prices. The rise in cotton prices in the past six months has put great pressure on Indian textile companies.
According to a recent survey by the rating agency ICRA, the profits of spinning mills have been squeezed again. The main problems are stagnant sales revenue growth and increased raw material costs. The average profit margin of Indian textile companies in the past two quarters dropped from 15.4% in September 2016 to 12.8% in December, and further dropped to 11% in March 2017.
The decline in cotton prices in India in the past two months has brought hope to textile companies, but can it be sustained? Industry experts predict that the cotton planting area in India will increase by 10% in 2017/18, and the harvest prospects in the United States and Australia are promising, so it is difficult for international cotton prices to strengthen. Indian cotton prices are closely related to international cotton prices, so Indian cotton prices are also expected to remain weak in the coming months.
The key to the problem is that the demand for cotton yarn is difficult to increase. In fiscal year 2017, India’s cotton yarn production fell to its lowest level in five years. The main reason for the weak demand from textile companies in 2016 was the sharp decline in cotton yarn exports (reduced demand from China). Cotton yarn exports accounted for 1/3 of India’s total cotton yarn consumption. Although India’s cotton yarn exports have recovered in recent months, it is not enough to offset the previous sharp decline.
With the approach of Indian festival sales, the elimination of the impact of demonetization policy and the transition to the new GST tax system, Indian spinning mills expect an increase in domestic fabric purchases. At the same time, due to the average operating rate of domestic textile enterprises and weak cotton prices, cotton yarn prices may stagnate. Therefore, there is still not much hope for cotton yarn sales in the future, and it is difficult for yarn mills to see a significant improvement in profits.
In addition, although the 5% GST tax is a good thing for the cotton textile industry, most textile companies in India are small and medium-sized enterprises, so the problems caused by the new GST tax system and the short-term supply problems caused by increased costs may continue. a period of time. The true operating conditions of textile companies may not be revealed until at least the second half of fiscal year 2018. India: Cost pressure is expected to be reduced, and it is difficult for yarn mill operations to improve
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