Fall in crude oil price impact synthetic yarn makers

Domestic synthetic yarn makers forced to reduce prices, thereby incurring loss over the inventory with continual fall in prices of crude oil and key polyester yarn raw materials such as monoethylene glycol (MEG) and purified terephthalic acid (PTA).

Jyotiprasad Chiripal, director at Chiripal Group said that brent crude oil prices have now fallen below $60 a barrel. In the last two month, the continual fall in crude oil prices have led to fall in prices of polyester yarn as well as its raw materials like PTA and MEG by anywhere between 10% and 25%. However, yarn makers had held stocks at $115 a barrel levels and are now incurring loss on stock and margins. The quote price of texturised roto-80 benchmark synthetic yarn stand at Rs 100-110 per kg levels, as against the Rs 130 per kg levels 2-3 months ago.

According to Makarand Appalwar, managing director of Emmbi Industries Ltd, a synthetic yarn maker, the loss of stock and margins is being borne by yarn makers who are mostly exposed to domestic market.

Those focused on exports are still safeguarded since contracts have been hedged at over $110 a barrel levels. But, there is a high level of uncertainty that is not good for yarn manufacturing industry as of now.

President of the Bombay Yarn Merchants Association, Jayesh Pathak said that usually fall in crude oil prices, followed by raw material prices are beneficial to synthetic yarn makers but as of now they are incurring loss of margins and stocks since the current inventory is valued at over $100 a barrel levels of crude oil.

Adding to that, demand is also sluggish among textile mills as they are in a wait-and-watch mode and hoping for further drop in crude oil prices. Yarn prices have fallen by 25% in last two months.

As per the monthly Platts Global Petrochemical Index (PGPI), prices in the $3-trillion-plus global petrochemicals market extended its fall by 4% in October, as upstream energy prices continued to slide. Petrochemical prices, expressed as a monthly average, fell to $1,324 (Rs 84,000 roughly) per metric ton (/mt) from $1,384/mt (Rs 88,000) in September.