A report on the man-made fibre industry has predicted that margins of domestic synthetic fibre manufacturers will rise in the medium term.
The report, the Indian Man-made Fibres Industry Report compiled by rating agency Icra, however, said the improvement would be driven by a global improvement and not so much by internal factors.
The report is based on assessment of trends in the global manmade fibres industry and the polyester chain, which is set to experience a rise in margins following the faster increase in demand vis-a-vis capacity.
However, the over-capacity in the paraxylene market is currently high, and operating rates are expected to recover to the "high" levels only in the medium to long term.
Players with a presence in intermediates (purified terephthalic acid, di-methyl terephthalate and mono-ethylene glycol) are expected to gain more, says the report, adding the improvement in price and margins was also likely to benefit the viscose staple fibre and nylon filament yarn and industrial tyre yarn categories. These had been the worst hit segments by depressed prices.
The domestic man-made fibres industry is a "critical enabler" of the textiles industry and exports. The fortunes of the man-made fibres industry are linked to the performance of the petrochemicals industry at the global level, and of the textile industry at the domestic level, says the report, which also examines 11 companies accounting for the industry's entire profits.
India is the fifth largest man-made fibre producer in the world, after China, South Korea, Taiwan and Japan, producing 1.5 million tonne of the global production of around 24.0 million tonne.
The current downturn in the global polyester markets have turned the small players sick and hurt the medium capacity players.
The report says stock prices of these middle-capacity players have taken a severe beating, making them good targets for acquisition by financially strong players.
Reliance Industries (RIL) has acquired various medium-capacity players in the domestic polyester filament yarn (PFY) industry, like Raymond Synthetics, ICI and DCL Polyester. It is also in the process of acquiring JCT Fibres. The acquisition of small players will result in fewer but stronger companies in the man-made fibres industry.
Strong local demand has helped the sector. Polyester accounts for 38 per cent share of the domestic fibre consumption and for ultimate use in the domestic market, the share is even higher at over 50 per cent.
But the weak weaving industry finds it difficult to export synthetic fibre-based textile goods, while cotton, cotton-blend textiles and clothing are exported mainly on strength of low raw cotton prices.
With the textile trade coming under World Trade Organisation (WTO), the man-made fabrics and the apparel industries would have to measure up to two major challenges. One, the challenge of imports, as fabrics and apparel would be under a higher threat from imports than other forms of textile.
Two, the challenge of selling in a domestic market moving towards saturation. The government's new textile policy, although a trifle late, does seek to introduce reforms in the industry ahead of the WTO challenge.
