India Ratings and Research (Ind-Ra) in its latest report has said that the US withhold release order on cotton and apparel imports from specific producers in Xinjiang Uygur Autonomous Region (XUAR) might escalate global trade tensions and thus have negative implications on Indian textile sector in the short run. However, Ind-Ra said it could be beneficial in the medium term.
According to the report, there is a risk of further sanctions by the US government on curbing imports of the products originating from or having linkages with XUAR. Furthermore, it said importers in the US are likely to be concerned about any economic, legal or reputational concerns on any of their supply chains linked to XUAR. It noted that this action may have spooked China and it could resort to retaliatory measures. It added that cotton procurement from the United States could be delayed by Chinese mills, leading to favourable supplies from Brazil and India -- both of which are likely to have high inventories.
The report further said while demand from the United States could impact overall cotton demanded by China, the value-addition could gradually move out of China to other geographies. However, it said this is more of a medium term-phenomenon. Indian yarn players have high export dependence on China (FY16 to FY19: around 30 percent) which reduced to around 20 percent for the three months ended June on account of lower demand and growing competition from Vietnam and Pakistan.