Export potential for synthetic yarn in the Indian industry is seeing a sharp decline again with the dwindling Chinese economy. 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 production due to decline in the world's buying capacity for textiles. This has resulted in synthetic yarn exports, especially texturised yarn falling steeply, said Jayesh Pathak of Bombay Yarn Traders Association.
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 percent, Pathak added.
Apart from China, the sector could also see impact from lower export competitiveness of Indian synthetic yarn due to continued import and central excise duty 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 FY16, coupled with lower crude prices.
Analysts and industry experts have forecasted a negative outlook for the synthetic textile sector for FY16 which had been impacted in recent past due to decline in Chinese demand.
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 O P Lohia, chairman of Indo Rama Synthetics (India) Limited, given the synthetic yarn's competition to cotton, the latter's loss could result in the former's gain in near future. They can only improve from here since they 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, they will grow on the back of reduced competitiveness of cotton.
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 dropped by 30 percent in last one year, Lohia added.
The India Ratings & Research report stated that the 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 declining by 19 percent q-o-q to $628 per metric tonne and MEG declining by 5 percent q-o-q to $ 783 per metric tonne in the quarter ended March 2015,
While margins for texturised yarns and fully drawn yarns are likely to be partly insulated due to higher value addition, the polyethylene terephthalate (PET) chips space and low value-added partially oriented yarn (POY) segment could continue to face oversupply.
According to the report, the sharp decline in crude prices and industry over-capacity resulted in PET chips prices falling to Rs 64 per kg in March 2015 from Rs 87 per kg in March 2014 while POY prices also fell 22 percent year-on-year (y-o-y) in March 2015 to Rs 76 per kg.
According to industry sources, global demand for synthetic yarn in recent times has seen sixty percent decline.
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