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Indian spinners’ profits may improve in second half of year

Indian spinners continue to face challenges. Exports are falling due to weak demand from China. Domestic demand has also slowed down amid inventory clearance prior to implementation of GST. However, a surplus cotton supply may offer Indian spinners respite during the second half of this fiscal. Global cotton production during this cotton year is estimated to exceed consumption after two consecutive years of shortfall. The resulting cotton surplus will create a downward bias in prices, which augurs well for the domestic cotton spinning industry.

The cotton crop output in the country is expected to grow by five per cent in cotton year 2018. There has been a 12 per cent rise in sown area, driven by firm cotton prices, which has made it remunerative for farmers to choose cotton against competing crops. While cotton yarn prices were holding firm till August 2017, despite demand side pressures, those have been corrected by five per cent in September 2017 due to sustained demand side pressures and in anticipation of softening cotton prices.

However, with further correction in cotton prices expected with the commencement of the harvest season in October 2017, spinners’ profitability is expected to improve during the second half of the current financial year.