Operating with a wafer-thin margin, synthetic textile players to pass on the raw material price hike to the consumer
Synthetic fabric and textiles are likely to become costlier by 2-5 per cent due to an unabated increase in their production cost on rising raw material prices following crude oil move and a weak rupee.
Synthetic yarns are made from petrochemicals like DMT, PTA, which are refined from crude oil and usually domestic makers of these raw materials also price them at import price parity. Therefore, Prices of these raw materials for synthetic yarns are rising in the Indian market.
The spurt in raw material price is a clear indication of a proportionate increase in cost pressure for user industries. Apart from a steep depreciation in rupee against the dollar is set to make import of raw materials costlier, leaving thereby no room for synthetic textiles manufacturers but to raise their product prices.
“Rising raw material prices and rupee depreciation are going to make the entire textile products costlier. Synthetic textile industry is already working with a wafer thin margin. Since there is no room for the industry to absorb the raw material price hike, the cost-push, therefore, has to be passed on to consumers,” said O P Lohia, Managing Director, Indo Rama Synthetics (India) Ltd, one of India’s largest producers of synthetic textiles.
The benchmark Brent crude oil prices have jumped by a staggering 12.9 per cent in the previous one month to trade at $78.9 a barrel on Tuesday. Also, the rupee has depreciated by 4.1 per cent in the last one month to quote at 72.9 against a dollar on Tuesday.
Meanwhile, the Union Ministry of Agriculture has estimated India’s cotton output at 34.89 million bales (of 170 kgs each) for the crop year 2017-18 (ending September 2018), a rise of 32.58 million bales from the previous year. For the ongoing kharif sowing season, however, pink bollworm attack is set to affect India’s cotton crop area by 10-20 per cent of the total area sown of 12.06 million hectares as of September 14.
Demand from China is set to increase in favour of India following a heavy import duty levied on cotton imports from China and also a 20-25 per cent of cotton output in Pakistan expected to decline by a fourth, the fibre prices are likely to remain elevated.
“With limited supply in the market during H1 cotton season 2018-19 on account of increased orders from China, prices are expected to register a growth of about 5-7 per cent and reach Rs 122-125 per kg during this period and average at about Rs 127-130 per kg for the season 2018-19 registering a y-o-y growth of about 9-11 per cent,” said Madan Sabnavis, Chief Economist, Care Ratings. But, given that analysts forecast crude oil price to remain firm, synthetic fibre and yarn prices may also remain firm with its consumption to partly replace by derivatives of the natural fibre.
“An improvement in cotton price to polyester staple fibre price spread is likely to result in volume growth of synthetic textiles and support the profitability of the synthetic value chain,” said Prakash P, Analyst, India Ratings and Research.