ICRA feels manmade fibre sector will get tougher

With the textile trade coming under the WTO regime in a few months, the Indian manmade fabrics and apparel industry would have to face the challenge from imports as well as greater competition in the domestic manmade fibres market.

In a recent report on the Indian manmade fibres industry, credit rating agency ICRA's information and grading service division Ingres has cautioned non-integrated textile and yarn enterprises about the future as the global market for polyster intermediates looks up.

Post-WTO, domestic polyster demand-supply situation would become uncertain. Fabrics would be under higher threat from imports than other forms of textiles. The fibres market would be threatened as well.

Demand for polyster in the domestic market increased at over 15 per cent till the late 1990s. Polyster accounted for over 40 per cent share of the country's total fibre consumption at last count.

"Further the weaving industry, being weak, finds it difficult to export synthetic fibre based textile goods as cotton and cotton-blend textiles and clothing are exported from India mainly on the strength of low prices. Thus with the textile trade also coming under WTO rules, the manmade fibres and apparel industry will have to gear up to face the heat of challenges," it said.

The ICRA report pointed out the manmade fibres market was getting saturated. Manmade fibre products contributed to the competitiveness of the cotton textile industry.

Manmade staple fibres were cotton supplements while manmade filament-based yarns served as cotton substitutes. Therefore, the manmade filament yarn sector had the potential to contribute positively to the cost competitiveness of the cotton textile industry.

"Historically, the government had been levying much higher excise duties on synthetic fibres and yarns in comparison with cotton. However, over the last decade, excise duties on synthetic fibres and yarns have been lowered and this process is expected to continue, thus eventually removing the excise bias against manmade fibres," said the report.

The report said global polyster filament yarn (PFY) demand was expected to grow at 5 per cent during 2002-05 against 4.4 per cent reported during 1998-2002. Chinese PFY demand was likely to increase at 8 per cent per annum over the same period, against 18 per cent in the period 1998-2002.

"However, capacity additions are expected to be faster than the increase in demand, with the result that operating rates are likely to decline. More importantly, polyster intermediates are expected to witness an increase in operating rates and margins during the current year, which would push down profitability for polyster manufacturers," it mentioned.

About the mono-ethylene glycol (MEG) segment, the reports said at present, MEG investory levels were low. There had been no capacity expansion in the intermediate so far.

"While the twin factors point to strongly positive prospects for MEG producers, they are causes for concern for non-integrated polyester producers and as BASF of Germany has announced plans to exit MEG production, which will cause a decline in world operating capacity in the last year, this year is also likely to witness demand growth outstripping capacity addition, with the result that the operating rates may reach very high levels," it observed.

In the purified terephthalic acid (PTA) segment, the ICRA report said margins were expected to remain high till end-2004, after which new capacity was likely to be added thus ushering in a downturn.

"In the paraxylene (PX) market, however, the over-capacity was currently very high, and the operating rates are expected to recover to 'high' levels only in the medium to long term," it added.