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ICRA expects weak export demand and high cotton prices would hurt spinners hard

Indian independent and professional investment information and credit rating agency, ICRA expects that the weak export demand and high cotton prices would hurt the profitability of domestic cotton spinners. The commencement of the cotton harvest season has been accompanied by a softening of the domestic cotton price, however, it remains 17 per cent higher Year-on-Year.

The firmness in cotton prices is driven by a hangover of cotton shortage in India earlier in the year, slower cotton arrivals amid the demonetisation drive and uncertainty related to the extent of improvement in domestic crop-size against a backdrop of superior yields but lower sown area. Besides, weakness in export demand poses challenges for the domestic spinning industry. Cotton yarn exports have been under pressure due to lower demand from China amid improved local mill usage.

Senior vice-president and group head, ICRA Jayanta Roy said that as the domestic spinning industry remains highly dependent on exports, the fall in export demand is a major challenge for the industry. The cotton yarn export quantity was 23 per cent lower YoY during 7M FY2017. The improved domestic mill consumption in China has reduced its dependence upon imports, adversely impacting yarn exports from India. China’s yarn import quantity declined by 20 per cent (YoY basis) during 7M FY2017 with a steeper decline in imports from India, which have fallen by 54 per cent YoY.