While cotton prices continued to gain by 2-4 per cent month on month (MoM) in October on account of the resumption in demand from the casual wear, knitted and home textile segments, they were lower by about 5 per cent year on year (YoY), according to the October edition of India Ratings and Research’s (Ind-Ra) credit news digest on India’s textile sector.
With the United States Department of Agriculture’s Foreign Agricultural Service (USDA-FAS) estimating a steady cotton production for the current season, it would lead to an oversupply in the Indian market, affecting prices further. However, the Cotton Corporation of India had taken steps to liquidate its inventory during July-September 2020 which would lead to a substantial lower inventory, Ind-Ra said.
Cotton yarn prices continued their recovery in October and remained stronger than blended yarn prices, on due to a higher demand from export markets. Large cotton spinners using the inventories purchased prior to COVID-19 have written-down/inventory losses during the second quarter (Q2) of this fiscal, which is likely to have affected the first half operating margins.
The smaller spinners, having lower cotton inventory and exposure into knitted casual wear, have reported a stellar performance for the second quarter over woven and blended segments.
Yarn exporters continued to witness an uptick in demand during August, with production resuming to pre-COVID levels and flattish on YoY levels. Yarn exports in tonnage terms grew by 38 per cent YoY during August.
Ind-Ra expects it to have improved further during September-October. The recovery in yarn demand with unlocking and resumption of production by mills in neighbouring countries would lead to a rise in shipments.