'Textile prices recovered, no sustainable recovery yet'

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SME Times News Bureau | 06 Aug, 2020
Prices of textile products recovered broadly in June 2020 from the lows of April and May on account of gradual resumption of operations, India Ratings and Research said on Wednesday.

According to Ind-Ra, several textile companies have increased utilisation of their respective capacities after the easing of lockdown restrictions since May 2020.

"The inventory pile-up, lower channel liquidity, and labour migration in the context of subdued demand will continue to impact textile operations and exports in 2FY21," the ratings agency said in a credit report on the textile sector.

"Furthermore, the pick-up in the domestic demand in June could only be a flash in the pan after the unlock and hence there is a need to watch its sustainability.

The rating agency noted that extension of Rebate of State and Centre Levy of Taxes scheme has provided some respite to exporters.

"Ind-Ra believes there could be opportunities emanating from global retailers looking to diversify away from China. The segments to benefit are garments and home textiles," the statement said.

On the sub-segments of the textile industry, the ratings agency pointed out that international cotton prices (US) continued to recover in June, after dipping in April.

"With India cotton prices remaining stable in June, Ind-Ra expects cotton exports to inch up due to a better pricing environment," the statement said.

"Fibre prices are steady, but yarn prices are weak, which will continue to pressure the margins of industry participants. Polyester staple fabric to cotton spread is the lowest since 2016; thus, the switching rates are likely to slow down a bit in the near term."

It noted a stronger recovery story on the man-made textiles side, with crude oil prices continuing to increase after falling in April 2020.

"Drawn texturised yarn price needs a special mention, which increased in June 2020. However, on a YTD basis, the price for imported purified terephthalic acid and mono-ethylene glycol fell," the statement said.