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Overview
After registering a decline of about 9% in cotton season (CS) 2018-19,
India’s cotton production is likely to witness a double-digit growth of
about 16% in CS 2019-20 with production at 6.6 billion kg during the
year on back of favourable monsoon as well as increased MSP that led
to increased cotton crop sowing. For CS20, the acreage under cotton is
estimated to have marginally increased by about 1.3% to 12.8 million
hectares.
Cotton prices (S-6 & J34) during the year remained largely stable
witnessing an increase of about 2-4% on back of increased MSP despite
weak demand after remaining range bound during domestic CS18 at
about Rs 118 per kg on account of subdued demand from the spinners.
Also, low and uneven rainfall along with loss of crop due to pink
bollworm attacks in Maharashtra and Karnataka kept the supply in the
domestic market tight during the year. Domestic cotton consumption
increased only marginally by about 1% y-o-y mainly by mills. In FY19,
however, exports demand witnessed an improvement led by demand
from Bangladesh, Vietnam, Pakistan and Sri Lanka. Exports to China
remained strong as well.
- Going forward, as per International Cotton Advisory committee (ICAC),
on back of falling stockpiles in China despite marginally higher
production in CS20, cotton imports are expected to witness a marginal
uptick from China during the year. However, China’s cotton and cotton
yarn imports from India are expected to remain under pressure as
China has entered phase II of free trade agreement with Pakistan,
which competes directly with Indian yarns and fibres. In July 2019, MSP
for cotton - medium and long staple has been further increased by 2%
and 1.8% for FY20 and currently stand at Rs 5,255 per quintal and Rs
5,550 per quintal respectively. However, going forward, prices are
expected to remain range bound and average at about Rs 124 - 127 per
kg for CS20 despite increased MSP due to higher production amidst
subdued demand .
-
- Cotton yarn production is expected to remain largely stable at current
levels and increase only marginally by about 1.5-2.5% to reach 4,200 –
4,250 million kg in FY20, on back of increased availability of cotton at
lower prices and higher demand from Bangladesh and Vietnam despite
subdued domestic demand. Also, 100% blended & non-cotton yarn
production is expected to witness a stable growth of only about 2-4%
to 1,710 – 1,740 million kgs on the back of expectations of y-o-y lower
crude oil as well as substitute cotton prices in the domestic market.
December 11, 2019 I Industry Research Textiles Industry Update:
Cotton & MMF - Outlook 2020
Contact: Madan Sabnavis Chief Economist [email protected] +91-22- 6754 3489
Author
Darshini Kansara Deputy Manager – Industry Insights [email protected] +91-22-6754 3679
Mradul Mishra (Media Contact) [email protected] +91-22-6754 3515
Disclaimer: This report is prepared by CARE Ratings Ltd. CARE Ratings has taken utmost care to ensure accuracy and objectivity while developing this report based on information available in public domain. However, neither the accuracy nor completeness of information contained in this report is guaranteed. CARE Ratings is not responsible for any errors or omissions in analysis/inferences/views or for results obtained from the use of information contained in this report and especially states that CARE Ratings has no financial liability whatsoever to the user of this report
Industry Insights I Cotton & MMF Update – December 2019
2
Production
Cotton: In CS19, India’s production stood at 5.6 billion kg, lower by about 9% on a y-o-y basis on account of scarcity of
water led by uneven and inadequate rainfall in key cotton-producing states during the year. Also, some cotton crop was
destroyed during the season due to increase in incidents of pest attacks in Maharashtra and Karnataka leading to lower
yields. It should also be noted that the acreage under cotton during the CS19 witnessed a negligible increase of about 0.2%
to 12.6 million hectares vis-à-vis an increase of over 16% during CS18. For CS20, the acreage under cotton is estimated to
have increased by about 1.3% to about 12.8 million hectares while the production is estimated to register a sharp increase
of about 16% y-o-y to 6.6 billion kg.
MMF: The domestic MMF industry mainly consists of two components, polyester and viscose, which together accounts for
about 94% (in volume terms). Under this, polyester accounts for about 77.5% while viscose accounts for the remaining
share. MMF is primarily used to produce 100% non-cotton fabrics and blended fabrics, which are in turn used in readymade
garments, home textiles and other industrial textiles. In FY19, MMF production stood at 2.6 billion kg, witnessing an
increase of about 3.7% y-o-y after declining about 0.7% in FY18. In FY20 (April-August), production stood at 1.14 billion kg,
registering a growth of about 5.7% y-o-y led by an increase of over 7.6% in the production of filament yarn and about 4.3%
growth in the production of staple fibre during the period.
Chart 1: Cotton production (Billion Kg) Chart 2: MMF production (Billion Kg)
Note: *Projected, CS – Cotton Season (Domestic cotton season starts October 1) Source: International Cotton Advisory Committee (ICAC), Cotton Advisory Board (CAB), Ministry of Textiles, Office of Textile Commissioner
- for CS19 India Crop – Cotton Advisory Board’s (CAB) latest estimate has been considered
6.6
5.6
5.9
6.2
5.7
6.6
5.0
5.2
5.4
5.6
5.8
6.0
6.2
6.4
6.6
6.8
CS15 CS16 CS17 CS18 CS19E CS20E
2,592 2,511 2,523 2,506 2,602
1,079 1,141
FY15 FY16 FY17 FY18 FY19 FY19(Apr-Aug)
FY20 (P)(Apr-Aug)
Industry Insights I Cotton & MMF Update – December 2019
3
Chart 3: Share of products in MMF – (%)
Source: Office of Textile Commissioner
Cotton Prices
World – World cotton production is projected to be higher than its consumption in CS20, after being lower for the last four
years in a row. This is expected to stabilise and bring down prices marginally that were on a rise in the last few years.
Production in two key countries; India and USA declined during CS19 on a y-o-y basis is expected to lead to the shrinking of
stock piles in the world. This supported the rise in price during the period in the world market keeping them largely range
bound at US 87-88 cents per pound after increasing by about 5.5% y-o-y during CS18 on account of lower demand from
China, world’s largest cotton consumer, despite depleting stock piles. Also, increased demand from China has restricted the
availability of the fibre globally putting pressure on the prices in CS19.
Chart 4: Cotlook A Index (US cents/pounds) Chart 5: Domestic Cotton Prices (Rs/kg)
(World Cotton Season Starting August 1) (Domestic Cotton Season starting October 1)
Source: International Cotton Advisory Committee (ICAC), CMIE, Cotton Corporation of India (CCI)
Domestic - Domestic cotton prices (S-6 & J34) increased by about 2-4% in CS19 (October 2018 – Sept 2019) on a y-o-y basis
on the back of increased MSP for cotton despite weak demand after remaining range bound during domestic CS18 at about
VSF 14.8
PSF 34.0
ASF 3.7
PPSF 0.1
VFY 1.9
NFY 1.6
PFY 43.5
PPFY 0.4
71.0 70.4
83.0 87.6 86.5
CS15 CS16 CS17 CS18 CS19
117.1
93.1
102.9
118.0 117.0
122.7
116.2
93.2
103.4
116.9 119.3 119.8
CS14 CS15 CS16 CS17 CS18 CS19
S-6 J-34
Industry Insights I Cotton & MMF Update – December 2019
4
Rs 118 per kg on account of subdued demand from the spinners. Prices witnessed an increase of about 2-4% y-o-y and
averaged at Rs 121.3 per kg in the domestic market CS19 lead by increased MSP. Also, low and uneven rainfall along with
loss of crop due to pink bollworm attacks in Maharashtra and Karnataka kept the supply in the domestic market tight.
However, in CS20, the production is estimated to increase by a sharp 16% y-o-y, easing the supply constraint and thereby
marginally softening the domestic prices.
Going forward, on back of falling stockpiles in China despite marginally higher production in CS20, cotton imports are
expected to witness a marginal uptick from China during the year. However, China’s cotton and cotton yarn imports from
India are expected to remain under pressure as China has entered phase II of free trade agreement with Pakistan, which
competes directly with Indian yarns and fibres. In July 2019, MSP for cotton - medium and long staple has been further
increased by 2% and 1.8% for FY20 and currently stand at Rs 5,255 per quintal and Rs 5,550 per quintal respectively.
However, despite increased MSP, we expect prices to remain largely range bound and average at Rs 124 – 127 per kg for
CS20 led by higher production and subdued demand. Also, y-o-y lower crude oil price is expected to keep the substitute
(MMF) prices stable during the year.
Typically new crop prices are always higher despite the increase in supply in the market for a month or so. Subsequently it
increases further or drops depending on the daily arrivals and demand from spinners. When arrivals increase in the market,
prices fall subsequently and spinners purchase in bulk (2-3 months inventory) which leads to subdued demand in following
months. Purchasing is completed by March or latest by April-May.
MMF prices
Chart 6: Price Trends (Rs/Kg) - PSF (1.2D), PFY (126D), VSF and VFY
Source: Ministry of Textiles
PSF and PFY prices witnessed a double-digit increase of about 21.9% and 14.7% respectively on a y-o-y basis in FY19, while
cotton prices witnessed a growth of about 6.8% (S-6) and 9.2% (J-34) y-o-y during the same period. MMF prices witnessed a
higher increase on back of higher crude oil prices in the country. Crude oil prices registered a growth of about 21.5% y-o-y
in FY19 vis-à-vis a growth of about 15.7% during the corresponding period previous year. PSF and PFY prices averaged at Rs
124 and Rs 116 per kg respectively, as of FY19 period.
104.6 89.3 91.6 101.9
124.2
118.1 100.0 96.4 101.6 116.5
154.4 157.9 169.4 187.8 197.0
356.1 355.0 375.7 377.4 369.7
FY15 FY16 FY17 FY18 FY19
Polyester Staple Fibre (PSF) Polyester filament yarn (PFY/POY)Viscose Staple Fibre (VSF) Viscose Filament Yarn (VFY)
Industry Insights I Cotton & MMF Update – December 2019
5
The VSF prices are dependent on prices of wood pulp. VSF prices have consistently witnessed a stable CAGR growth of
about 6.3% between FY15 and FY19. The high CAGR is also on account of FY18, where prices witnessed a sharp growth of
about 11%. The prices of VSF are also driven by the availability and prices of the other fibres and the energy cost. At the
end of FY19, the VSF prices averaged at Rs 197 per kg and prices of VFY are at Rs 370 per kg in the domestic market.
Yarn Production
After remaining largely range bound in FY18, cotton yarn production in India registered a growth of about 3% y-o-y in FY19.
Cotton yarn production stood at 4,182 million kg during FY19. Overall export demand for cotton yarn remained strong
during the FY19 period on account of high demand from China coupled with competitive cotton prices in the international
market. However, domestic yarn demand continues to be sluggish with substitution taking place from MMF. During H1
FY20, cotton yarn prices (cotton hank yarn 40s) witnessed a marginal uptick of about 2.7% y-o-y and averaged at Rs 274.7
per kg on back of increased raw material prices in the market. However, yarn demand for the Indian players remained
subdued in the export market, during H1 FY20 owing to higher domestic cotton prices compared to the world cotton prices.
Also, demand from China remained weak on back of free trade agreements with Pakistan, which competes directly with
India’s cotton yarn.
Chart 7: Cotton & Blended & 100% Non-blended Yarn Production (Million kg) and Prices (Rs/kg)
Source: Ministry of Textiles and CMIE Blended and 100% non-cotton yarn demand has consistently been witnessing an upward trend in the last 5 years
registering a CAGR growth of about 4% between FY15 and FY19, with an exception of FY18, where crude oil prices
witnessed a sharp increase of over 18.5% on a y-o-y basis leading to higher feedstock PTA and MEG costs. Production stood
at 1,680 million kg in FY19, a y-o-y growth of about 4%. In FY20 (April-August), production of blended and 100% non-cotton
yarn stood at 710 kg, registering an increase of about 2.2% y-o-y.
4,0
55
4,1
38
4,0
55
4,0
64
4,1
82
1,7
59
1,6
77
1,4
33
1,5
27
1,6
04
1,6
16
1,6
80
69
5
71
0
FY15 FY16 FY17 FY18 FY19 FY19(Apr-Aug)
FY20(Apr-Aug)
Cotton Yarn Production Blended & 100% Non Cotton Yarn
239.8 224.6
241.6 259.9 269.6
196.3 183.6
195.4 205.3 220.5
203.0 178.1 166.6 159.3
171.3
FY15 FY16 FY17 FY18 FY19
Cotton Hank Yarn Prices (40s)
Polyester Vis Blended Yarn Prices
Polytester Cotton Blended Yarn Prices
Industry Insights I Cotton & MMF Update – December 2019
6
Feedstock
Domestic Production and Consumption, Imports and Exports
A. PTA
Chart 10: PTA Production & Consumption (000 tonnes) Chart 11: PTA Imports & Exports (000 tonnes)
Source: Department of Commerce, CMIE
PTA is a key raw material component in the polyester value chain and reacts with Mono Ethylene Glycol (MEG) in the
process of continuous polymerisation for producing polyester. For production of every 1MT of polyester melt, produced
via the process of continuous polymerisation, 0.86MT of PTA is required. The largest application for PTA is in Polyethylene
Terephthalate (PET) for the polyester industry to produce industrial & textile fibres, PET bottles and film & moulded
product applications. The PTA industry is a highly organised industry, with Reliance Industries (~70%), Mitsubishi (~21%)
and IOCL (9%) being the only PTA manufacturers in India.
PTA production in India has largely remained stable at average of about 3,500 thousand tonnes over the last five years.
Demand for PTA is driven by the textile and beverages sector. Earlier during FY14-FY15, with increasing consumption of
PTA, the demand was met by imports, but with the expansion of capacities by manufacturers in India, the share of imports
in the PTA industry declined over the years. B. MEG
Chart 12: MEG Production & Consumption (000 tonnes) Chart 13: MEG Imports & Exports (000 tonnes)
Source: CMIE
3,4
68
3,4
32
3,3
91
3,4
92
3,4
05
4,5
13
3,9
56
3,5
43
3,8
02
3,8
12
FY15 FY16 FY17 FY18 FY19
Production Consumption
1,045
697
412 522 570
0.1 173 260 212
162
FY15 FY16 FY17 FY18 FY19
Imports Exports
92
3
1,1
59
1,1
10
1,1
33
1,1
60
1,7
83
2,1
98
2,2
84
2,0
62
1,5
02
FY15 FY16 FY17 FY18 FY19
Production Consumption
929
1,112 1,235
1,066
635
69 72 62 137
293
FY15 FY16 FY17 FY18 FY19
Imports Exports
Industry Insights I Cotton & MMF Update – December 2019
7
The MEG industry is a highly organised industry, with Reliance Industries, India Glycols and IOCL being the only MEG
manufacturers in India. The MEG production in India has remained largely stable at around 900 – 1,100 thousand tonnes
during FY15 and FY19. It registered a CAGR growth of about 6% between FY15 and FY19 from 923 thousand tonnes to
1,160 tonnes in FY19. Imports had been consistently increasing till FY17, however, in FY18 and FY19, imports declined by
about 13.7% and over 40% y-o-y respectively on back of higher domestic production and subdued demand. Imports
registered a decline of about 9% CAGR between FY15 and FY19 while consumption recorded a slower 4.2% CAGR during
the period. Exports, however, has witnessed a significant increase of over 40% between FY15 and FY19.
Prices
The main raw materials of polyester are purified terephthalic acid (PTA) and mono ethylene glycol (MEG). Costs of these
petrochemical derivatives are largely subject to volatility in crude oil prices. The prices in the last 2 years have increased
sharply on back of rising crude oil prices. However, in FY19, with over 21% higher crude oil prices, PTA prices witnessed a
sharp increase of over 28% y-o-y on back of lower production while MEG prices registered a decline of over 5% y-o-y on
back of about 2.4% higher production amidst 27% decline in consumption on a y-o-y basis.
Chart 14: Price Trends – PTA, MEG & Crude Oil
Source: CMIE
829 641 636
693
890 833
892
748 721
881
834
582
85
47 49
58
70 71
-
10
20
30
40
50
60
70
80
90
-
100
200
300
400
500
600
700
800
900
1,000
FY15 FY16 FY17 FY18 FY19 FY20 (Apr-May)
PTA SEA prices ($/tonne) MEG SEA prices ($/tonne) Crude Oil (Brent) ($/barrel - FOB)
Industry Insights I Cotton & MMF Update – December 2019
8
Trade
Chart 15: Cotton yarn imports & exports (Million Tonnes)
Source: CMIE
During FY19, about 35-40% of the total cotton yarn were to China (465 million tonnes), followed by about 18% to
Bangladesh (225 million tonnes), about 5% to Pakistan (61 million tonnes) and Egypt (58 million tonnes) each and about 3-
4% to Vietnam (43 million tonnes). India imports only about 5-7 million tonnes of cotton yarn primarily from China,
Vietnam, Indonesia and Sri Lanka.
Chart 16: MMF imports & exports (Million Tonnes)
Exports Imports
Source: CMIE
1,256 1,309 1,205
1,100
1,261
654
424
6 6
8
7
5
3 3
-
1
2
3
4
5
6
7
8
9
-
200
400
600
800
1,000
1,200
1,400
FY15 FY16 FY17 FY18 FY19 FY19 (Apr-Sept)
FY20 (Apr-Sept)
Exports Imports
18
4
18
2
21
4
22
7
25
5
12
9
13
4
64
8
63
5 7
47
71
7
69
5
36
1
34
3
7 8 7 8 7 4 4
13
0
15
4
15
8
12
5
79
45
37
FY15 FY16 FY17 FY18 FY19 FY19(Apr-Sep)
FY20(Apr-Sep)
Polyester Staple Fibre Polyester Filament Yarn
Viscose Filament Yarn Viscose Staple Fibre
82
100 100
89 92
42
66 72 72
84 82 83
39
65
16 10 11 14 17
8 11
27 34 34
28
42
23 27
FY15 FY16 FY17 FY18 FY19 FY19(Apr-Sep)
FY20(Apr-Sep)
Polyester Staple Fibre Polyester Filament Yarn
Viscose Filament Yarn Viscose Staple Fibre
Industry Insights I Cotton & MMF Update – December 2019
9
Table 1: Country-wise shares in MMF Trade – top 5 (FY19)
PSF PFY VFY VSF
Exports
USA (14%) Turkey (24%) Czech Republic (12%) China (19%)
Nepal (12%) Brazil (24%) Egypt (11%) Turkey (12%)
Bangladesh (10%) Bangladesh (6%) Brazil (11%) Iran (11%)
Belgium (7%) Egypt (4%) Morocco (8%) Bangladesh (10%
Mexico (6%) Korea (4%) Turkey (7%) USA (8%)
Imports
China (55%) China (43%) China (96%) Indonesia (56%)
Korea (15%) Indonesia (21%) UAE (2%) Austria (24%)
Indonesia (10%) Korea (12%) Hong Kong (1%) China (7%)
Thailand (5%) Taiwan (7%)
Sri Lanka (4%)
Taiwan (4%) Thailand (5%)
Greece (4%)
Source: CMIE
Cotton Yarn Demand & Price Demand: Cotton yarn demand in India remained sluggish during the FY19 at 2,933 million kg registering a decline of about
1.4% y-o-y after increasing by about 3.9% during the same period last year. However, export demand witnessed a strong
double-digit growth of 14.7% y-o-y and stood at 1,261 million kg after declining by about 8.8% during FY18. China and
Bangladesh together account for about 55% of India’s total cotton yarn exports followed by Pakistan, Egypt and Vietnam
that account for 5%, 4.5% and 3.5% respectively as of FY19. The overall domestic textiles industry is on the path of revival
with the effects of goods and services tax (GST) implementation in July 2017 now fading. In FY19, on back of higher crude
oil prices (21.5% higher y-o-y); demand for MMF witnessed marginal slowdown. Going forward, Cotton yarn production is
expected to remain largely stable at current levels and increase only marginally by about 1.5-2.5% to reach 4,200 – 4,250
million kg in FY20, on back of increased availability of cotton at lower prices and higher demand from Bangladesh and
Vietnam despite subdued domestic demand. Also, 100% blended & non-cotton yarn production is expected to witness a
stable growth of only about 2-4% to 1,710 – 1,740 million kgs on the back of expectations of y-o-y lower crude oil as well
as substitute cotton prices in the domestic market. With the industry now stabilising post the demonetisation and the
implementation of the goods and service tax (GST) regime, the demand from downstream industry - apparels and made-
ups, has started to marginally pick up in the last few months and is expected to witness a growth of about 10-12% y-o-y
in FY20 on back of rise in disposable income, increased usage of plastic money leading to impulsive buying among the
Indian consumers. In terms of exports, with increased demand from major importing country China (demand increased by
a sharp 47% y-o-y in FY19 after declining by over 30% during FY18), cotton yarn exports are likely to continue register an
uptick going forward. However, Vietnam continues to be in a better position to serve the Chinese yarn demand since last
few years as exports from India to China attract a 3.5% duty, while Vietnam has duty-free access to Chinese markets. Also,
Chinese yarn manufacturers have set up their operations in Vietnam for free flowing trade activities. Despite this, India is
expected to continue being the largest exporter of cotton yarn in the world.
Industry Insights I Cotton & MMF Update – December 2019
10
Table 2: Regression - Cotton (S-6 & J-34) & Cotton hank yarn (40s)
Table 3: Regression - Polyester Filament Yarn (PFY/POY) & PTA and MEG
Regression Statistics
R Square 0.24
Adjusted R Square 0.21
Standard Error 0.01
Observations 60
Coefficients t Stat
Intercept 0.0013 0.84
S-6 0.08 1.07
J-34 0.06 0.68
Regression Statistics
R Square 0.07
Adjusted R Square 0.04
Standard Error 0.05
Observations 60
Coefficients t Stat
Intercept 0.0 -0.32
PTA 0.24 1.85
MEG -0.02 -0.23
Source: CARE Ratings, CMIE
As can be seen in the Tables above, cotton yarn prices do not move in tandem with the cotton prices alone, i.e., the
coefficient is not significant. Similarly for PSF prices, while PTA shows significant coefficient, MEG does not, therefore it can
be concluded that prices alone do not determine the yarn or fibre prices and demand, inventories and supply conditions
continue to have a significant impact on the prices.
Going forward, with crude oil prices expected to moderate in FY20 on back of ever increasing US oil production; overall
weak world economy on back of on-going trade wars, the substitute manmade fibre (MMF) prices are expected to be
competitive in the domestic as well as international markets. Hence, Care Ratings’ expects the demand for cotton yarn to
improve only marginally by about 3-5% y-o-y during the upcoming season. In FY19, cotton yarn prices (40’s count)
increased only by about 3.8% y-o-y to Rs 270 per kg despite an increase of about 6 – 9% in cotton prices during the same
period on account of weak domestic demand. Similarly, during CS19, cotton yarn prices increased only marginally by about
2% to Rs 272 per kg while input material cotton price witnessed an increase by about 4 – 5% during the same period.
However, cotton yarn demand will be closely monitored due to China’s cotton policy and diminishing stockpiles as well as
volatile crude oil prices that impact the prices of its substitute – manmade fibres (synthetic yarns).
Spinners Profitability
Cotton yarn prices (cotton hank yarn - 40s) witnessed slower growth of about 3.8% y-o-y in FY19 after increasing by over
7% for the last 2 years. However, prices have started recovering on a month-on-month basis after witnessing stable growth
for last few months with a growth in cotton prices. Also, polyester fibre and yarn prices have witnessed higher growth of
about 18% in FY19 while polyester blended yarn prices have witnessed only a marginal growth of about 7.4-7.5% y-o-y
during the same period. Therefore, despite stable cotton and MMF prices, operating margins of the spinners will
continue to remain under pressure in the short to medium term till the demand in the domestic market picks up
considerably for cotton and blended yarn. Also, on back of slower movement in yarn demand, the utilisation rates of the
domestic spinners is expected to be lower which will put further pressure on the margins.
Cotton yarn prices are highly volatile due to volatility in the demand (depending on price of the substitute – synthetic yarn),
which is majorly impacted by exports of cotton and cotton yarn. Also, any fluctuation in crude oil impacts the prices of the
substitute man-made fibres and yarn. India exports around 15-20% of cotton and 30–40% of cotton yarn. Therefore, even
Industry Insights I Cotton & MMF Update – December 2019
11
a minute change in the exports demand supply scenario significantly impacts domestic prices and thereby the margins of
the yarn spinners.
Major policies announced
- As of August 2018, the Government of India has increased the basic custom duty to 20% from 10% on 501 textile
products, to boost Make in India and indigenous production
- The Government of India announced a Special Package to boost exports by US$ 31 billion, create one crore job
opportunities and attract investments worth Rs 80,000 crore (US$ 11.9 billion) during 2018-2020. As of August
2018 it generated additional investments worth Rs 25,345 crore (US$ 3.8 billion) and exports worth Rs 57.3 billion
(US$ 854.4 million)
- The Government of India has taken several measures including Amended Technology Up- gradation Fund Scheme
(A-TUFS), scheme is estimated to create employment for 35 lakh people and enable investments worth Rs 95,000
crore (US$ 14.2 billion) by 2022.
- Integrated Wool Development Programme (IWDP) approved by Government of India to provide support to the
wool sector starting from wool rearer to end consumer which aims to enhance the quality and increase the
production during FY18 to FY20.
- The Cabinet Committee on Economic Affairs (CCEA), Government of India has approved a new skill development
scheme named 'Scheme for Capacity Building in Textile Sector (SCBTS)' with an outlay of Rs 1,300 crore (US$ 202.9
million) from FY18 to FY20. - The government extended 2% interest subsidy for modernising spinning machines that are over 15 years old
- 10% capital subsidy for all new machines for the weaving and garmenting sector, 5% interest subsidy for common
effluent treatment plant, 15% capital subsidy for the individual ETP and Rs 1 crore R&D assistance for ETP
- The Government of India has increased the basic custom duty to 20% from 10% on over 500 textile products, to boost
indigenous production and the Make in India programme.
- The Government of India announced a Special Package to boost exports by US$ 31 billion, create one crore job
opportunities and attract investments worth Rs 80,000 crore during 2018-2020.
In March 2019, the Central government approved a scheme to rebate State and Central Embedded Taxes for
apparels and made-ups exports. Source: Industry, IBEF
Outlook 2020:
− Going forward, on back of falling stockpiles in China despite marginally higher production in CS20, cotton imports are
expected to witness a marginal uptick from China during the year. However, China’s cotton and cotton yarn imports
from India are expected to remain under pressure as China has entered phase II of free trade agreement with Pakistan,
which competes directly with Indian yarns and fibres.
− In July 2019, MSP for cotton - medium and long staple has been further increased by 2% and 1.8% for FY20 and
currently stand at Rs 5,255 per quintal and Rs 5,550 per quintal respectively. However, going forward, prices are
expected to remain range bound and average at about Rs 124 - 127 per kg for CS20 despite increased MSP due to
higher production amidst subdued demand.
− Cotton yarn production is expected to remain largely stable at current levels and increase only marginally by about 1.5-
2.5% to reach 4,200 – 4,250 million kgs in FY20, despite high cotton prices and subdued domestic demand, on back of
higher demand from Bangladesh and Vietnam. 100% blended & non-cotton yarn production is expected to witness a
Industry Insights I Cotton & MMF Update – December 2019
12
stable growth of about 2-4% to 1,710 – 1,740 million kgs on back of expectations of y-o-y lower crude oil prices as well
as marginally higher prices of substitute cotton in the domestic market
− Operating margins of the spinners will continue to remain under pressure in the short to medium term till the demand
in the domestic market picks up considerably for cotton and blended yarn
− However, cotton yarn demand will be closely monitored due to China’s cotton policy and diminishing stockpiles as well
as high crude oil prices that impact the prices of its substitute – manmade fibres (synthetic yarns).
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