The continued lockdown in India in April 2020 has affected the entire textile industry and disrupted exports, according to India Ratings and Research (Ind-Ra), which expects the export demand to be weak until the first half of fiscal 2020-21 till the economic recovery of the United States and Europe, which are the major hubs for Indian products.
Furthermore, the domestic demand as a discretionary product is expected to pick up gradually in the second quarter of this fiscal, but will be lower than a normal year demand. For this fiscal, the agency expects textile players to record a substantial fall in their top line and operating profits.The continued lockdown in India in April 2020 has affected the entire textile industry and disrupted exports, according to India Ratings and Research (Ind-Ra), which expects the export demand to be weak until the first half of fiscal 2020-21 till the economic recovery of the United States and Europe, which are the major hubs for Indian products.#
Cotton prices continue their downward trend amid a declining demand and the spread of coronavirus, leading to lower consumption and thus disruptions in the global supply chain.
They fell by 2.3 per cent month on month (MoM) and by 11.3 per cent year on year (YoY) in March 2020, on account of reduced off-take by mill owners facing the heat of production disruption and excess inventory amid the pandemic, said Ind-Ra in the March 2020 edition of its credit news digest on India’s textile sector.
However, the Cotton Corporation of India continues to hold up the stock (30 per cent of total arrivals) and may support the current prices over the short term. The agency expects the prices in this fiscal to correct by 5-10 per cent YoY, owing to a sharp fall in international cotton prices amid a reduction in the consumption levels by 6.4 per cent MoM for the current season.
The current global lockdown in major economies has also led to a loss in the spinning capacities of three and half weeks or about 16 per cent of the expected global capacities of March. The pandemic situation is also affecting the supply chain of the cotton sector. While Chinese cotton mills’ spinning fell by up to 90 per cent during the peak of crisis in early March, the recent resumption of spinning and manufacturing activities provides a hope of limiting the impact on the segment for the marketing year.
With around 50 per cent drop in the global oil prices in March-April 2020, companies in the man-made fibre segments are staring at inventory losses, as there will be limited pricing power in the short run. The working capital cycle may remain stretched with an elongation of receivable cycle and higher inventory volumes.
The operating profitability could be impacted by 25-30 per cent YoY in this fiscal due to lower gross margins and negative operating leverage. Moreover, the likely supply shortage of imported purified terephthalic acid for domestic players because of the pandemic would limit the correction in raw material prices.
Fabric players witnessed lower production in March 2020, on the back of a lower downstream demand and disruptions on account of the current crisis. During the first 11 months of the last fiscal, the production of knitted fabrics fell by 1.2 per cent YoY, which is expected to decline substantially in this fiscal amid a declining demand and discretionary spending along with a gradual revival of export markets.
The fabric industry is dominated by a few players that have strong liquidity to manage the downside caused by the pandemic, while small and medium players would face the brunt of the economic lockdown.
Manufacturers of apparels have been grappling with a lower domestic demand and disruptions in the physical supply chain across the globe. Spending on clothing is highly correlated to household incomes; with unemployment in the United States rising at unprecedented rates, the agency expects a persistent weak consumer demand to impact downstream production.
Global retailers are responding to rapid declines in consumer spending by reducing and cancelling orders for textiles and apparels. The agency expects exports from India to fall by at least a quarter in this fiscal for the fourth consecutive year.
The home textile industry will also be impacted substantially with almost 80 per cent of revenues coming from the US and European markets. While major retailers have deferred orders or cancelled them, the need for innovation and ability to shift to new product lines would be the key.
The home textiles industry has witnessed players switching capacities to manufacture medical masks, personal protective equipment, wet wipes and advanced textile fabrics to mitigate fixed costs and negate the reduced export demand.
Fibre2Fashion News Desk (DS)
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