Decline in cotton prices may ease pressure on Indian textile companies

The market recently predicted that India's national cotton production will increase by 10% in 2011-12, but the demand for yarn and ready-made garments has been declining. As a result, Indian cotton prices have begun to plummet. Sankar-6 cotton prices have fallen by 43% from the historic high of 59,700 rupees/candy. On the bright side, spinning mill profits have fallen to the bottom in the past two quarters, and now the drop in input costs will increase the profitability of spinners.

Last week CRISIL's optimistic research report pointed out that the operating profit rate of spinning mills in fiscal 2013 is expected to increase by 200-300 basis points (bps) from approximately 8% this year.

Traders believe that before March of this year, cotton prices rose spirally, and now cotton prices have bottomed out and fall to August 2009 levels.

However, the key factor for the improvement of the yarn market is the growing demand for garments. The demand for garments ultimately depends on the economic development in developed markets Europe and the United States. At least in the next two quarters, these market prospects are expected to be bleak. Only a devaluation of the rupee can increase export revenue.

According to Nair, Secretary-General of the Indian Federation of Textile Industry, 187 of the 226 listed cotton textile companies reported poor performance and 126 net losses. Only a handful of integrated companies have performed well in the quarterly results that ended in September. .

The good news is that most factories clean up inventory and losses. The CRISIL report added that the inventory-to-consumption volume for the 2011-12 cotton season was about 2.5 months earlier than expected, compared to the low level of 1.2 months in the previous year. Inventory-to-dosage ratio left and right cotton market sentiment.