India Ratings and Research (Ind-Ra) in its latest report has said that the margins of cotton textiles are expected to improve in the coming period. It expects cotton prices to soften till March 2020 due to better yield leading to higher productivity of cotton in the current season. It highlighted that cotton prices had dropped in November 2019 however, December 2019 marked the beginning of an upward movement in prices by 2-3 percent year-on-year.
According to the report, while the arrival of cotton during first quarter of the current season (October to September) as expected by the Cotton Corporation of India (CCI) will improve by 8.5 percent, the impact on actual prices is not visible. It said the CCI has maintained its forecast for cotton production at 35.4 million bales during the current season. Further, it said the yield per hectare is expected to improve by more than 6 per cent over the previous season due to higher acreage and better monsoon.
The report has stated that the demand for fabric exports has contracted owing to weak market sentiments and increased competition from southeast Asian countries. Fabric exports fell 12 percent year-on-year in November and improved 12 percent year-on-year. It pointed out that crude oil prices could remain volatile in the short-run owing to geopolitical tensions and production cuts by OPEC, which impacts the man-made textile margins. Besides, it said man-made fibres saw the third consecutive month of low volatility until November of raw material prices on the back of stable crude oil prices, which has helped the segment maintain stable EBITDA (earnings before interest, taxes, depreciation, and amortisation) margins and improve credit metrics.
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