A Crisil study of 75 spinners indicates, despite the pandemic, yarn manufacturers will maintain operating profit rates at 10 per cent this year on account of a sharp rebound in demand in the second half of the current fiscal leading to improved yarn prices.

Prices of polyester yarn and its key input, purified terephthalic acid (PTA) rebounded in September 2020-January 2021. On the other side, prices of viscose yarn and its raw material input have remained largely steady, supporting spreads. Although the prices of polyester spreads are expected to soften over the next two quarters, they would still remain higher than that in the corresponding periods of last fiscal. This will support operating profitability next fiscal, too.

Dinesh Jain, Director, Crisil Ratings says, operating rates for synthetic yarn spinners are expected to be in the range of 65-70 per cent this fiscal, even with strong order flows in the second half. But the spreads are attractive this fiscal. In fact, the low rates provide spinners enough headroom to absorb additional demand next fiscal, without immediate need to increase capacities.

Overall the industry is expected to see contraction in volume to 5.5 million tonne this fiscal from 6 million tonne last fiscal. Spinners are expected to mitigate this impact by tightening working capital cycles, with faster collections and better inventory management, adds Jain.