Indian cotton yarn industry is likely to record 5-7 per cent growth in sales volume, while the operating margin is expected to expand by 1-1.50 per cent in this fiscal on the back of alignment of domestic cotton prices with international prices and shift in demand from competing nations.
Gradual recovery in demand from China following the relaxation of its zero-Covid policy and a rebound in global demand from downstream industries will also help cotton yarn exports, said a CareEdge report.
Last fiscal, the industry faced several challenges including the disparity between domestic and international cotton prices, a decline in global demand due to high inflation and recessionary pressures in developed economies, and increased energy and supply chain costs.
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Consequently, India experienced its lowest cotton yarn exports in a decade, leading to a decline in sales volume and a contraction in the operating profit margin for cotton yarn spinners which remained below the historical average.
While challenges persisted in the first half of this fiscal, CareEdge said there are positive indications for the demand of Indian cotton yarn in the second half of FY’24.
Cotton production in India is expected to increase by 6-9 per cent to 330-343 lakh bales in cotton year 2022-23 against 311 lakh bales logged last year.
This projected increase is supported by a 6 per cent increase in area under cultivation and a 2-3 per cent rise in yield.
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After touching a peak of about ₹1 lakh per candy (of 356 kg) in FY23, domestic cotton prices are hovering at about ₹56,000-57,000 per candy with arrival of new crop.
Cotton yarn exports from India hit a decade-low level of 664,000 tonnes last fiscal against the highest exports of 13.89 lakh tonnes in FY22.
While spinning units were able to pass on the increase in cotton prices to some extent, the significant drop in sales volume, coupled with rising energy costs and freight rates, led to a contraction in operating profitability margins. The average spread of cotton yarn remained about ₹100-105 a kg, similar to pre-Covid levels, said CareEdge.