Mumbai, 14 July (Commoditiescontrol): The Cotton Yarn industry in India is poised for a significant revival, expecting a 5-7% increase in volume growth in FY24, according to a report by CareEdge Ratings. This turnaround comes after a year marked by substantial setbacks including a drop in cotton production and elevated global cotton prices.
Cotton production in India dropped from 352 lakh bales in the Cotton Season (CS) 2020-21 to 311 lakh bales in CS 2021-22, caused by the increase in the average domestic cotton price. However, it's projected to rebound by 6-9% to 330-343 lakh bales in CS 2022-23. This recovery is supported by a 6% growth in the cultivation area and a 2-3% rise in yield.
According to Krunal Modi, Associate Director at CareEdge Ratings, "Slowdown in demand is expected to continue in H1FY24 amidst macro-economic headwinds while demand is expected to improve in H2FY24, thereby limiting growth in FY24. Overall, the Indian cotton yarn industry is expected to witness 5-7% growth in sales volume during FY24 while average sales realisation of cotton yarn is expected to fall by 12-17% followed by a decline in cotton prices."
Indian cotton yarn exports experienced a significant drop from 1,389,000 tonnes in FY22 to 664,000 tonnes in FY23 due to the rise in cotton prices. The loss in sales volume, along with increasing energy costs and freight rates, led to a shrink in operating profitability. Bangladesh has emerged as the largest importer of Indian cotton yarn during FY22 and FY23, replacing China due to the USA's ban on cotton products from Xinjiang.
However, the industry is expected to recover in FY24. The recovery is expected to be supported by the parity with international cotton prices, shift in demand from competing nations, and the gradual easing of policy, which is likely to improve demand from China. Trade agreements with Australia and UAE are expected to open new avenues for export. A decrease in cotton arrivals in Pakistan due to floods could present an opportunity for Indian manufacturers to fill the market gap.
In addition to export demand, domestic consumption is expected to contribute to growth. Retailers' increasing order flow for RMG and home textiles in H2FY24 will stimulate demand for cotton yarn. The resurgence of the domestic market coupled with international opportunities could signal a positive shift for the industry, which is expected to offset the 8-10% projected revenue de-growth, with the operating margin anticipated to expand by 100-150 bps.
The future for the Cotton Yarn industry looks promising with the combined effects of policy relaxation, trade agreements, and a revival in domestic and global demand, heralding a turnaround in FY24.
(By CommoditiesControl Bureau; +91-9820130172)
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