Yarn production is likely to decline 5-8 per cent year-on-year in the fiscal 2019-20, owing to lower demand from China and volatility in cotton prices, a report by India Ratings and Research (Ind-Ra) has said.
Prices of cotton have seen a declining trend with pressure from competitive international rates, due to higher production in some countries, it said.
Cotton contributes about 50 per cent of the total raw material in the Indian textile industry.
"With muted demand for yarn from China, and Pakistan enjoying duty-free exports to China, Indian yarn manufacturers are suffering idle capacities and production losses," Ind-Ra said.
The report said synthetic/manmade fibre (MMF) has seen stabilisation in prices with support from almost-stable crude prices in the second quarter.
"Further, the improving spread with cotton has made MMF more lucrative sub-sector for the textile market," it said.
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"Readymade garment exports have started improving from end-1QFY20 and the beginning of 2QFY20, recording higher exports with the introduction of rebate from state and central taxes and levies scheme... along with the existing Merchandise Exports from India Scheme," the report added.
The Northern India Textile Mills' Association (NITMA), in a recent report, said export of cotton yarn between April and June was 35 per cent lower than last year.
It said an "ongoing crisis" resulted in the closure of approximately one third of the spinning capacity across India.
"The industry would not be able to buy the upcoming cotton crop of about 40 million bales worth around Rs 80,000 crore," the association had said.
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