Cotton Yarn Exports to China Resulting in Higher Domestic Prices: India Ratings

China's demand for India's cotton has pushed domestic yarn prices higher, said India Ratings and Research.

Accordingly, domestic yarn production increased in January 2021, led by strong export and moderate domestic demand during December 2020.

"While yarn production was substantially lower on a YoY basis up to 8MFY21, exports increased by higher single digits YoY due to a healthy demand from neighbouring countries,"

"China's demand for Indian yarn resumed to pre-Covid levels during November-December 2020, as against a volume drop from Bangladesh and Vietnam during same period."

In January 2021, cotton yarn prices increased 15 per cent MoM and 30 per cent YoY, resulting in higher gross margins.

"The higher cotton yarn demand is attributed to the global supply curbs on Xinjiang region (China) cotton, which is benefitting Indian domestic spinners."

"While exports are likely to moderate during January-February 2021 with likely shutdown of mills ahead of Chinese new year, demand resumption is likely by March 2021."

Consequently, cotton prices surged by 7-10 per cent MoM during January 2021, led by a strong export demand for cotton yarn.

"The international prices rose by 13-17 per cent YoY, led by the buoyant China demand for US cotton, which is having a rub-off effect on cheaper Indian cotton prices."

However, apparel exports declined in December 2020, after recovering over September-November 2020 on a YoY basis due to the impact of a second wave of Covid-19 in the US and Europe.

"This would also impact the near-term order book position of ready-made garment exporters for the upcoming fashion season."

"During November 2020, knitted apparels volumes remained stagnant with realisations gaining by high single digit yoy basis; on the contrary, woven apparels volumes increased by 8.2 per cent and realisations fell substantially yoy basis. During 2020, India exports to the US fell 20-25 per cent YoY in both volume and value terms."