Stock Advisory in Indore, Cotton spinners pin hopes on demand uptick to improve margins
The industry is also expected to see a bumper crop, which could bring down cotton prices to some extent
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The cotton yarn industry is pinning its hopes on a fall in raw material (cotton) prices, after having had its margins squeezed in the past couple of quarters owing to dwindling yarn exports and excess spinning capacity.
According to cotton yarn spinners, margins were hit when the price of cotton went up, leading to lower demand from fabric and garment manufacturers, as well as dwindling yarn exports.
Spinners are hoping that margins will improve in the last quarter of the current fiscal year on the back of an uptick in demand and improved yarn exports. However, in the interim, the industry is also expected to see a bumper crop, which could bring down cotton prices to some extent.
“Raw materials have been high whereas the forward integration value chain has seen sluggish demand.
Hence, margins have been squeezed for cotton spinners,” said Jyotiprasad Chiripal, director at Chiripal Group.
Chiripal said margins had fallen 7-10 percent recently.
According to CRISIL, margins fell to a 20-quarter low in the second quarter of 2017-18.
“The second quarter of fiscal 2018 was the least profitable in five years for spinners, or cotton yarn mills. Margins touched 10.3 percent, compared with a peak of 18.8 percent in the corresponding quarter of fiscal 2014,” CRISIL stated in its report recently.
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