The Coronavirus (COVID-19) is expected to severely damage profitability of India’s spinning sector. Even though domestic cotton fiber prices continue to be competitive vis-a-vis international cotton prices, a further correction in international cotton prices amid demand-side uncertainties could render domestic spinners uncompetitive in international markets.

As for the performance of the Indian cotton spinning industry, it has already been severely constrained in the current fiscal amid multiple headwinds, including a demand slowdown in the domestic as well as export markets and unfavorable raw material prices. While the industry was pinning hopes on a gradual recovery in cotton yarn exports from the fourth quarter onwards, aided by softening of domestic cotton prices, the recent developments could prolong tough times for the domestic spinners. The domestic cotton spinning industry is highly dependent on exports, especially to China, where 30 per cent of the cotton yarn produced in the country is exported.

The outbreak in China and the consequent lockout in parts of the country resulted in a shutdown of production units in India, trickling down to lower demand for the yarn. The resultant correction in realisations, even as cotton prices have remained relatively stable on the back of scaled-up market interventions by the Cotton Corporation of India, are expected to contract spinners’ contribution margins.