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India ICRA expects cotton yarn exports to decline during FY 2020

As pressures continue to build up on credit profiles of domestic cotton spinners as they continue to grapple with challenges on the demand front, ratings agency ICRA expects India’s cotton yarn exports to decline to an eight-year low during FY2020.

The agency’s note released recently states performance of domestic cotton spinners is likely to weaken considerably in FY2020, with operating margins for the year being estimated to correct by 300-400 bps vis-a-vis previous year. As a result operating profitability is expected at multi-year lows, closer to the level last witnessed in FY2012 when most players suffered sizeable losses on inventory due to steep unexpected correction in cotton prices.

Moreover, competitiveness of Indian spinners could be hurt if there is a significant market intervention by the Cotton Corporation of India (CCI) which triggers a relative increase in domestic fibre prices, vis-a-vis international prices. This is more so as the cotton prices are likely to remain soft globally amid a healthy crop outlook for CY2020.

India’s cotton yarn export quantity fell by 35 per cent YoY during H1 FY2020 as a result of the aforesaid factors. Whereas markets other than China, which has been the largest cotton yarn market for India in the past few years, had supported demand during FY2017 and FY2018 when exports to China fell; pressure is more broad-based now. In comparison to a 57 per cent YoY decline in cotton yarn exports to China during 5M FY2020, exports to the other major markets have declined by over 20 per cent YoY, led by a 42 per cent and 27 per cent YoY decline in exports to Bangladesh and Pakistan respectively.