| In a statement issued today, the agency warned of increasing pressure on the profit margins of polyester manufacturers due to rise in petroleum prices. |
| "While cotton yarn manufacturers are currently benefitting from the low cost of their key raw material, the outlook for polyester yarn manufacturers is marred by high crude prices, making it difficult to compete with cotton. The price-sensitive Indian textiles market may witness a shift in consumption favouring cotton over polyester if oil prices remain high,'' the agency said. |
| The statement pointed out that as the prices of raw materials for synthetic yarn manufacturers have shown no signs of any let up, cotton has been getting increasingly cheaper in the country due to the use of pest-resistant cotton plants. |
| "Cotton prices in India have fallen almost 25 per cent since mid-2004 to historic lows... (with) no chances of recovery for at least the next two years... Use of Bt cotton (genetically modified to resist borers and other pests) has led to a sharp increase in yield, from 300 kg/hectare in 2001-02 to 370 kg/hectare in 2003/04 and 417 kg/hectare last year,'' Fitch Ratings pointed out. It also forecast yield to increase further as the use of the genetically modified crop spreads. "India's yield is only about one-third of China's,'' it said. |
| What may also lead to a bloodbath in the synthetic yarn industry, dominated by Reliance Industries, are also the planned expansions by the biggies in the sector, with Reliance itself planning to add nearly 500,000 tonne/year capacity to their already significant production. In all, the agency estimates production capacity to increase by more than 60 per cent in the country over the next three years. |
| "(At 4 per cent annual growth) demand is certainly not keeping pace... A combination of over capacity and subdued demand may lead to pressure on polyester margins in the future,'' it added. |
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