With the Chinese economy dwindling further, export potential for synthetic yarn in the Indian industry has fallen sharply again. China, which imports synthetic yarn from India to convert it into fabric and garment, has seen production being cut drastically.
"The recent market crash in China has a lot to do with bleak outlook of domestic production in almost all sectors, including textiles. Units in China have been cutting down on production due to decline in the world's buying capacity for textiles. This has resulted in synthetic yarn exports, especially that of texturised yarn, falling steeply," said Jayesh Pathak of Bombay Yarn Traders Association.
So much so, that analysts and industry experts have predicted a negative outlook for the synthetic textile sector for FY 2015-16, which had been impacted in the recent past due to decline in the Chinese demand. However, apart from China, the sector could also see an impact from lower export competitiveness of Indian synthetic yarn due to continued import and central excise duty continue on man-made fibres. According to a recent report by India Ratings & Research, a Fitch Group company, the industry also estimates price of polyester fibres to decline due to oversupply of cotton and cotton yarn over FY'16, coupled with lower crude prices.
Revising its outlook for the synthetic textile sector to negative for FY'16, the report stated, "Unfavourable cotton-polyester staple fibre (PSF) spreads have hurt domestic synthetic yarn demand. Lower export competitiveness of Indian synthetic yarn also contributes to the subdued outlook as import and central excise duty continue on man-made fibres."
According to industry sources, global demand for synthetic yarn in recent times has fallen by 60 per cent. "China had already begun reducing its import from India. But the scenario has aggravated to such an extent that Indian synthetic units have cut production by almost 40 per cent," Pathak added.
However, as a counter view, OP Lohia, chairman of Indo Rama Synthetics (India) Limited, stated that given the synthetic yarn's competition to cotton, the latter's loss could result in the former's gain in near future. "We can only improve from here since we have already hit the rock bottom. There may be an immediate impact of China's economic decline on the synthetic textiles industry in India but in the long run, we will grow on the back of reduced competitiveness of cotton," Lohia said.
According to Lohia, the synthetic yarn's competitiveness against cotton is improving day-by-day since cotton prices have been rising and are expected to rise further in near future. "As compared to that, synthetic yarn prices have fallen by 30 per cent in the last one year," Lohia added.
Prices of major raw materials like purified terephthalic acid (PTA) and mono-ethylene glycol (MEG) have also touched multi-year lows on account of lower crude prices, with PTA falling 19 per cent q-o-q to $ 628 per MT and MEG falling 5 per cent q-o-q to $ 783 per MT in the quarter ended March 2015, the India Ratings & Research report stated.
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