Cotton prices in India to remain high as supply concerns persist, says Ind-Ra

Man-made fibre

Ind-Ra expects man-made fibre (MMF) prices to remain volatile over the medium term owing to fluctuations in raw material prices, due to oil production cuts as well as ban on Russian oil imports amid the aggravating geo-political tensions because of the Russia-Ukraine war. The prices is likely to be affected by a higher substitution demand amid high cotton prices over the medium term. In August 2022, MMF fibre prices dipped in line with crude oil price.

Domestic purified terephthalic acid prices fell 16% MoM and rose 18% YoY in August 2022. Similarly, Indian polyester staple fibre prices (PSF) dropped 4% MoM in July 2022 but rose 9% YoY.

The report noted that cotton prices increased and PSF prices declined in August 2022. Due to this development, the cotton-PSF spread widened 32% MoM and about 190% YoY in August 2022. This made cotton-based products much more expensive than synthetic fibre/MMF based products, increasing the demand for MMF products. Ind-Ra expects continued demand substitution by MMF products due to the higher cotton prices over the medium term.

Cotton yarn

According to Ind-Ra, average cotton yarn prices were stable month-on-month but was 10% higher on a yearly basis in August 2022, driven by higher input prices because of reduction in production considering resistance from spinners and slowdown in consumer demand, leading to reduced spreads.

The spot spreads (cotton yarn – raw cotton) reduced 15% MoM up to Rs 113 per kg in August 2022. However, the rating agency expects fresh cotton arrivals in the coming months are likely to moderate raw cotton and thus cotton yarn prices.

Cotton-based fabrics and Synthetic fabrics

Production of cotton-based fabrics is expected to moderate due to inflated input costs, while production of polyester- or viscose-based fabrics is likely to remain steady or improve over the medium term.

The average prices of cotton-based and synthetic fabrics stood stable on a monthly basis. However, average prices of cotton-based fabrics rose 11% YoY and average prices of synthetic fabrics increased 18% YoY in July 2022.

Meanwhile, the production of cotton-woven fabrics and cotton knitted fabrics was below pre-covid levels in June 2022 due to higher inpust cost and subdued demand. In contrast, the production of polyester/viscose blended fabrics rose by 13% YoY, which was higher than pre-covid levels. As cotton and cotton yarn prices continue to be higher, the prices of cotton-based fabrics are also likely to remain elevated until fresh cotton arrivals.