COTTON YARN INDUSTRY OUTLOOK
31 May 2019
INDUSTRY OUTLOOK
India is one of the leading producers of raw cotton and cotton yarn in the world. Production of cotton yarn in
India has increased at a Compound Annual Growth Rate (CAGR) of 3.51 per cent from 3079 million kg in
2009-10 to 4059 million kg in 2017-18 while its consumption has increased marginally at a CAGR of less
than 1% only, during the same period. Thus, over the years, substantial exportable surplus of cotton yarn has
been generated in the country.1
Source: Confederation of Indian Textile Industry (CITI): Textile Times’ Volume XVI, No.6(April 2019)
https://www.citiindia.com/wp-content/uploads/2019/05/TT-APRIL-2019.pdf
However, in recent years, production faces certain adverse impact due to subdued export demand. Given the
weak demand along with high cotton prices and availability of MMF (manmade fibers) pose certain challenges
for the industry. The Cotton Association of India (CCI) has pegged the 2018-19 crop size at 348 lakh bales, lower
than the 365 lakh bales produced in 2017-18 on account of deficient rains hurting the output in states such as
Gujarat, Maharashtra and Karnataka.2
The states of Gujarat, Maharashtra, Telangana, Andhra Pradesh, Karnataka, Madhya Pradesh, Haryana,
Rajasthan, and Punjab are the major cotton producers in India. Cotton yarn and fabrics exports accounts for
about 23 per cent of India’s total textiles and apparel exports.3
Table 1: Area and Yield of Cotton Production in India (2010-11 to 2018-19)
Year
2010-11
Area
(Lakh Hectares)
111.42
Yield
(Kgs Per Hectare)
517
2011-12
121.78
512
2012-13
119.78
525
2013-14
119.60
566
2014-15
128.46
511
2015-16
118.77
484
2016-17
105.00
568
2017-18
124.29
506
2018-19
122.38
476
Source: Confederation of Indian Textile Industry (CITI): Textile Times’ Volume XVI, No.6(April 2019)
https://www.citiindia.com/wp-content/uploads/2019/05/TT-APRIL-2019.pdf and Cotton Corporation of India.
In Gujarat, cotton remains an important crop as the area is a hub for cotton and cotton product exports with large
ginning and spinning industry. The estimate for planted area in Gujarat remains lower in 2018-19, however,
yields are likely to be higher. The cotton acreage in Maharashtra is estimated to be marginally lower than last
year, but yields are estimated to be higher.4 Though drought did impact the crop in the Maharashtra and Gujarat
5
cotton belt, but it was not substantial.
Cotton planting in the northern states of Punjab, Haryana, and Rajasthan receive irrigation; more than 95 percent
of area in the states of Punjab and Haryana is irrigated. Cotton acreage in Haryana is expected to remain the
same as last year, but production is estimated to be higher. Planted area in Rajasthan is also estimated to
increase.
The acreage in the southern states of Andhra Pradesh, Karnataka and Tamil Nadu is expected to increase over
last year. However, the yields may vary based on different factors. In Andhra Pradesh, yields are expected to be
lower as the area that was previously planted using illegal herbicide-tolerant (HT) cotton seeds (estimated at 5-10
6
percent of total area), would now be planted using state government approved seeds which have a lower yield.
EXPORT SCENARIO
China is the world's largest importer of cotton yarn and it is the largest export destination for Indian cotton yarn
also. The other major export destinations for Indian cotton yarn are Bangladesh, Pakistan, Egypt, Portugal, and
Republic of Korea among the others.
Cotton yarn contributes significantly to the exports basket of India with USD 3.80 billion (estimated) export value
in 2018-19. Cotton yarn exports from India increased at a CAGR of more than 22% (quantity terms) during
2009-10 to 2013-14 when cotton yarn exports were given export incentives such as 2% incremental export incentive, 2% interest subvention and 3% focus market incentive. However, cotton yarn exports to world (quantity terms)
declined substantially at a CAGR of 4.4% during 2013-14 to 2017-18 as export incentives on cotton yarn were
7
withdrawn after 2013-14.
Source: ITC Trade Map and Confederation of Indian Textile Industry (CITI)
It may be noted that China is a major importer of cotton yarn from India; whereas a deterioration of US-China
relations or the so-called trade war might benefit India as China has to import cotton yarn from other countries
including India. However, Vietnam remains a major competitor for India. The following Table shows that Vietnam’s export share has increased in China compared to India over the years.
Table 2: China's Total Imports of Cotton Yarn and Share of India and
Vietnam
Year
2009
Total
Cotton
Yarn imports
by China
(USD Billion)
2.35
Vietnam’s share in total
Cotton Yarn imports by
China
(in Per Cent)
7.63%
India’s share in total
Cotton Yarn imports
by China
(in Per Cent)
7.75%
2010
3.21
10.44%
12.31%
2011
3.41
13.16%
15.23%
2012
4.95
12.38%
20.38%
2013
6.81
13.20%
29.83%
2014
6.22
20.32%
26.36%
2015
6.37
22.32%
29.32%
2016
5.13
32.53%
20.39%
2017
5.46
37.16%
19.60%
2018
5.85
36.66%
21.75%
Source: ITC Trade Map and Confederation of Indian Textile Industry (CITI)
In value terms, India's exports of cotton yarn declined by 25% from USD 4,570 mn. in 2013-14 to USD 3,443
mn. in 2017-18. This is mainly because of the duty disadvantage faced by the Indian exporters in major markets. For instance, China which is the largest importer of cotton yarn has shifted from India to Vietnam or Indonesia as they have duty free access while Indian yarn carries 3.5% import duty. Indian exports of cotton yarn are
subject to a 4% duty in the European Union (EU), while Least Developed Countries (LDCs) get duty-free access.
Table 3: Cotton Yarn Duty Comparison in Different Markets – India vs.
Vietnam
European Union (EU)
China
India
4%
3.5%
Vietnam
0
0
Source: Confederation of Indian Textile Industry
COTTON AND COTTON YARN PRICES
The operating margins of domestic cotton yarn spinners are likely to decline due to lower cotton output, rising
cotton prices and moderating demand. India’s cotton production is expected to decline further in cotton season
2019 due to low water availability, volatility in monsoon in major cotton producing states and pest attacks.
Global cotton prices are expected to remain steady at Rs 128-134 per kg.8
Source: Confederation of Indian Textile Industry
The gap between change in cotton price and yarn prices have declined after 2014 which however marginally
improved in 2018. This increasing gap between raw cotton prices and cotton yarn prices implies increasing
working capital requirements for the mills; this also reducing their margins.9 Further, another issue is that India’s
raw cotton is taking entry in various markets at zero duty, instead of being converted to yarn or fabric. This is
affecting employment and the entire value chain from farmers to spinners, weavers and knitters.10 Going
forward, cotton and cotton yarn prices will remain competitive as mills will have ample fiber supplies (domestic
and imports) to cater to both the domestic and export markets.11
MINIMUM SUPPORT PRICE (MSP)
There has been a continuous increase in MSP of cotton over the years. In 2018-19, cotton MSP is increased by
more than 28 per cent and 26 per cent for medium staple and long staple cotton (YoY basis), respectively (MSP
for Medium Staple Cotton has been raised from Rs. 4020 per quintal in 2017-18 to Rs. 5150 in 2018-19,
whereas for Long Staple Cotton the price is increased from Rs.4320 in 2017-18 to Rs.5450 in 2018-19).
Procurement was deferred because of arrivals expected from late planting, but small quantities are arriving in
markets in Northern India, as prices remain above MSP rates.12 However, smaller mills would require higher
working capital when they procure cotton at higher prices at the start of the season. The Cotton Corporation of
India (CCI) opened 330 procurement centres across key growing states since October 1 2018. However,
purchases at support price are yet to take pace due to the higher moisture content of over 12 per cent in cotton.
In 2017, CCI had procured less than four lakh bales under MSP operations, due to rapid increase in market
price that went above MSP rates. This year since MSP rates are much higher, the probability of higher volumes
being purchased under MSP is high.13
Source: Compiled from data from Confederation of Indian Textiles Industry, Textile Times, VOLUME XVI, No. 06,(April 2019).
MAJOR PLAYERS
Various foreign retailers and brands such as Carrefour, Gap, H&M, JC Penney, Levi Strauss, Macy's, Marks &
Spencer, Metro Group, Nike, Reebok, Tommy Hilfiger and WaI-Mart import Indian textile products.14 In India,
one of the major players is - Sutlej Textiles & Industries Ltd (STIL) is a leading producer of value-added yarns In
India. Since inception the company is into development of niche products to meet increasingly sophisticated
demands of the Industry. The company has market presence in over 60 countries. It is one of the largest integrated textile manufacturing companies. Largest product portfolios of spun-dyed, cotton blended and cotton
melange dyed yarns.15 The company’s products are manufactured in spinning mills in Bhawanimandi (Rajasthan), Baddi (Himachal Pradesh) and Kathau (Jammu & Kashmir) and a home textile fabric division at Daheli(Gujarat).16
Table 4: Major Players in the industry
Sl No.
Company
Business Areas
1
Vardhman Textiles Ltd.
2
Arvind Mills Ltd.
3
Raymond Ltd.
4
Garden Silk Mills Ltd.
Yarn, fabric, sewing threads, acrylic
fiber, garments
Spinning, weaving, processing and
garment production (denims, shirting,
khakis and knitwear)
Worsted suiting, tailored clothing, denim,
shirting, woollen outerwear
Dyed and printed fabric
5
Bombay Dyeing and
Manufacturing Company
Ltd.
Sutlej
Textiles
&
Industries Ltd (STIL)
Bed linen, towels, furnishings, fabric for
suits, shirts, dresses, saris in cotton and
polyester blends
Spun-dyed, cotton blended and cotton
melange dyed yarns
6
Source: ‘Textiles and Apparel’ (March 2018) India Brand Equity Foundation (IBEF)
Arvind Limited is a textile company. The company's principal products/services are finished fabrics and
garments. Its segments are textiles, brands, retail and others. The textiles segment includes fabric, yarn and
garments. The brands and retail segment includes retailing of branded garments, apparels and fabrics. The
textiles segment includes fabric, yarn and garments. The brands and retail segment includes retailing of branded garments, apparels and fabrics. The others segment includes technical textile, e-commerce and project
activity. It also manufactures cotton shirting, denim, knits and bottom weights (Khakis) fabrics, and jeans and
shirts garments. The Company, through its subsidiary, Arvind Lifestyle Brands Limited, markets branded apparel
and licenses international brands in India. Its brands portfolio includes international brands, such as Arrow, US
Polo, Izod, Elle and Cherokee. It also operates MEGAMART apparel value retail stores.17
Vardhman Textiles Limited is an integrated textile manufacturer. The company is engaged in manufacturing of
cotton yarn, synthetic yarn, woven fabric, sewing thread, acrylic fiber, garments. The company is a piece dyed
fabric manufacturer, and cotton yarn manufacturer and exporter.18 The company has manufacturing facilities
located in Punjab, Himachal Pradesh and Madhya Pradesh. The company markets its products in the European
Union, the United States.19 According to its latest annual report 2017-18, the continuous evolution of GST policies and tax rates did leave an impact on the operations of several industries, including the textile industry. The
company’s revenue declined marginally compared to previous year due to a drop in sales of yarn business. The
company targets to add around 100,000 spindles of capacity, and in fabric business, the company targets to
increase processing capacity from current level of 140 million meters per annum to approximately 180 million
meters per annum.20
Table 5: Government Initiatives
Sl No.
Scheme
Details of the Scheme
1
Technology
Upgradation
Fund Scheme (TUFS)
2
National Textile Policy 2000
3
FDI
4
SAATHI Scheme
5
Merchandise Exports
India Scheme (MEIS)
6
Scheme
for
Capacity
Building in Textiles Sector
(SCBTS)
7
Textile Incentives
Investment was made to promote modernisation and up-gradation
of the textile industry by providing credit at reduced rates. A
subsidy of Rs 1,400 crore (US$ 216.25 million) was released under
this scheme in 2017. Under the Union Budget 2018-19, Rs 2,300
(US$ 355.27 million) crore have been allocated for this scheme.
Key areas of focus include technological upgrades, enhancement of
productivity, product diversification and financing arrangements.
New draft for this policy ensures to employ 35 million by attracting
foreign investments. It also focuses on establishing a modern
apparel garment manufacturing centre in every North Eastern state
for which Government has invested an amount of US$ 3.27 million.
Foreign direct investment (FDI) of up to 100 per cent is allowed in
the textile sector through the automatic route.
The Union Ministry of Textiles, Government of India, along with
Energy Efficiency Services Ltd (EESL), has launched a technology
upgradation scheme called SAATHI (Sustainable and Accelerated
Adoption of Efficient Textile Technologies to Help Small
Industries) for reviving the powerloom sector of India.
The Directorate General of Foreign Trade (DGFT) has revised rates
for incentives under the Merchandise Exports from India Scheme
(MEIS) for two subsectors of Textiles Industry - Readymade
garments and Made ups - from 2 per cent to 4 per cent.
The Cabinet Committee on Economic Affairs (CCEA),
Government of India has approved a new skill development scheme
named 'Scheme for Capacity Building in Textile Sector (SCBTS)'
with an outlay of Rs 1,300 crore (US$ 202.9 million) from 2017-18
to 2019-20.
The Textile Ministry of India earmarked Rs 690 crore (US$ 106.58
million) for setting up 21 ready made garment manufacturing units
in seven states for development and modernisation of Indian Textile
Sector.
of
Source: ‘Textiles and Apparel’ (March 2018) India Brand Equity Foundation (IBEF).
To increase exports in the textile industry, the Government of India (GoI) had launched a Special Package for
the garment and made-up sectors in 2016. The package offers a Rebate of State Levies (RoSL), additional
21
incentives are provided under the Amended Technology Upgradation Fund Scheme (ATUFS). Effective November 1, 2017, the rates (incentive rates paid as a percentage of the realized FOB value paid to exporter to compensate for loss on payment of duties) under the Merchandise Exports from India Scheme (MEIS) have been
increased from 2 to 4 percent for apparel, and 5 to 7 percent for made-ups, handloom and handicrafts. Effective December 19, 2018, the government revised the duty drawback rates of the textile and apparel sector from
2.01 percent to 2.46 percent. For the development of economically weaker Powerloom weavers, and the overall development of the Powerloom sector, the government launched a multi-pronged scheme called PowerTex
India. The scheme upgrades and rationalizes old credit and infrastructure schemes with new upgradation and
22
modernization schemes, and is valid up to March 31, 2020.
INDUSTRY RISK
India's cotton yarn exports are struggling in the absence of export incentives despite having the world's second
largest spinning infrastructure. Apart from falling exports and excess production over domestic consumption,
some of the other major challenges before the Indian spinning industry are low cotton yield, contamination,
high moisture content, increasing cotton prices during the lean cotton supply season, declining margins of the
spinning industry due to price gap of cotton yarn over cotton, high manufacturing cost due to high interest rate
and power tariff, pending Technology Upgradation Funds Scheme (TUFS) claims, etc. Introduction of GST also
slowed the overall growth of textiles industry to some extent, as the industry faced challenges to cope up with
new tax structure. Rising cotton prices might impact margins of cotton mill spinning industries. Another challenge is that regional paste attacks may limit cotton sowing and adversely impact cotton yarn production. Possibility of rising wage levels (thus raising production costs) and decline in cotton crop yields in 2018-19 cotton
season also can’t be ruled out.23There is also need to cover cotton yarn under Merchandise Exports from India
24
Scheme (MEIS) to help boost India's exports and penetrate new markets especially in Africa, while enabling the
farmers get a better price for raw cotton.25 There are also issues of lower capacity utilisation due to poor off-take
of yarn and labour shortage as well as marginal competition from man-made fibre.26 Another challenge is that
Embedded taxes (Central & State Taxes and Levies) on cotton yarn are not refunded by the way of drawback
and cotton yarn is not covered under the Scheme for Rebate of State and Central Taxes and Levies (RoSCTL)
which reduces the export competitiveness of the spinning industry of India. Hence, bringing cotton yarn and
27
fabrics under ROSCTL Scheme and extending 3% interest equalization scheme to cotton yarn is also required.
Export incentives for cotton yarn and exploration of newer markets would provide a boost to the industry.
FOOTNOTES
1. ‘Textile Times’ Volume XVI, No.6(April 2019); Confederation of Indian Textile Industry(CITI)
2. ‘CAI trims cotton crop estimate for 2018-19 at 348 lakh bales’(6 October 2018) The HinduBusinessLine https://www.thehindubusinessline.com/economy/agri-business/cai-trims-cotton-crop-estimate-for-2018-19-at-348-lakh-bales/article25144579.ece
3. ‘Cotton Industry and Exports’(December 2018) https://www.ibef.org/exports/cotton-industry-india.aspx
4. India: Cotton and Products Annual: Expected Rebounds in Yields and Higher Mill Consumption Forecasted’(29 March 2019) USDA Foreign Agricultural Service (FAS).
5. ‘Varying cotton estimates put mills in quandary’(8 May 2019) The HinduBusinessLine https://www.thehindubusinessline.com/markets/commodities/varying-cotton-estimates-put-mills-in-quandary/article27072570.ece
6. In March 2019, the state government suspended the licenses of more than a dozen seed manufacturers, and is closely monitoring the upcoming planting season for use
of the illegal seeds.See, India: Cotton and Products Annual: Expected Rebounds in Yields and Higher Mill Consumption Forecasted’(29 March 2019) USDA Foreign
Agricultural Service (FAS) and ‘HT cotton use: AP lists out suspended varieties’(27 March 2019) The HinduBusiness Line https://www.thehindubusinessline.com/markets/commodities/ht-cotton-use-ap-lists-out-suspended-varieties/article26655525.ece
7. Confederation of Indian Textiles Industry https://www.citiindia.com/wp-content/uploads/2019/05/TT-APRIL-2019.pdf
8. ‘Lower output, price rise to hit cotton yarn margins’(8 May 2019) Financial Express https://www.financialexpress.com/market/commodities/lower-output-price-rise-to-hit-cotton-yarn-margins/1571452/
9. Confederation of Indian Textiles Industry, Textile Times, VOLUME XVI, No. 06,(April 2019).
10. https://economictimes.indiatimes.com/news/economy/foreign-trade/indian-cotton-fabric-yarn-exports-fall-due-to-high-duties-study/articleshow/67933119.cms?from=mdr
11. India: Cotton and Products Annual: Expected Rebounds in Yields and Higher Mill Consumption Forecasted’(29 March 2019) USDA Foreign Agricultural Service (FAS).
12. ‘Cotton Statistics and News (January 2019)No. 41, Cotton Association of India.
13. ‘Cotton Corp gears up for MSP operations’ (9 October 2018) The Hindu BusinessLine.
14. ‘Cotton Industry and Exports’(December 2018) https://www.ibef.org/exports/cotton-industry-india.aspx
15. https://www.ibef.org/industry/textiles/showcase/sutlej-textiles
16. http://sutlejtextiles.com/sutlej-overview.html
17. https://www.ibef.org/industry/textiles/showcase/arvind-limited
18. https://www.ibef.org/industry/textiles/showcase
19. https://www.ibef.org/industry/textiles/showcase/vardhman-textiles
20. Vardhman Textiles Ltd. Annual report 2017-18; p-14.
21. The scheme provides a one-time capital subsidy (ten percent of investment capped at approximately USD 2.8 million) for investments in employments and technology
intensive segments of the textile value chain. The scheme is valid for all segments except spinning for the period 2016-2022.
22. ‘India: Cotton and Products Annual: Expected Rebounds in Yields and Higher Mill Consumption Forecasted’(29 March 2019) USDA Foreign Agricultural Service (FAS)
https://gain.fas.usda.gov/Recent%20GAIN%20Publications/Cotton%20and%20Products%20Annual_New%20Delhi_India_3-29-2019.pdf
23. According to a Livemint news report, estimates from the Cotton Advisory Board point to production of 36 million bales (one bale = 170kg) during the 2018-19 cotton
season compared to 37 million bales in the previous year. Drought and uneven rainfall in Gujarat and Maharashtra is likely to pull down the average yield. However,
according to K. Selvaraj, secretary general of the Southern India Mills’ Association, “The situation is comfortable after the arrival of the initial crop in the market.” See, ‘Why
mills aren’t worried about low cotton production yet’(6 December 2018) Livemint https://www.livemint.com/Money/iBpvBWLucZGtURlwHRze2I/Why-spinning-mills-are-not-worried-about-low-cotton-producti.html.
24. With the aim in making India’s products more competitive in the global markets, the scheme provides incentive in the form of duty credit scrip to the exporter to
compensate for his loss on payment of duties. The incentive is paid as percentage of the realized FOB value (in free foreign exchange) for notified goods going to notified
markets. To determine the quantity of incentive, the countries have been segregated into three groups. Incentives on export of each product at 8-digit level (ITC HS codes),
depend on the group in which its destination country belong. See for details, https://www.eepcindia.org/MEIS/about-MEIS-scheme.aspx
25. https://www.news18.com/news/business/covering-cotton-yarn-under-meis-will-help-boost-indias-exports-textile-industry-body-2032879.html
26. ‘Varying cotton estimates put mills in quandry’(8 May 2019)The HinduBusinessLine https://www.thehindubusinessline.com/markets/commodities/varying-cotton-estimates-put-mills-in-quandary/article27072570.ece
27. https://texprocil.org/ChairmanDesk.htm
Infomerics Valuation And Rating Pvt. Ltd.
SEBI REGISTERED / RBI ACCREDITED / NSIC EMPANELLED
CREDIT RATING AGENCY
CONTACT DETAILS
Mr. Sankhanath Bandyopadhyay (Economist)
Phone:011-24654796
REGISTERED & HEAD OFFICE
Phone No: +91 11 24655636, 41743541, E-mail: vma@infomerics.com
Address: 104, 106,108/ 01st Floor, Golf Apartments, Sujan Singh Park, Maharishi Ramanna Marg,
New Delhi-1100003.
CORPORATE OFFICE
Mr. Santosh Kr. Yadav
Mobile No.: +91 8929802902, E-mail: syadav@infomerics.com
Office No.: 022-62396023; 022-62396053
Address: Office no 1105, B wing, Kanakia Wallstreet, Off Andheri Kurla Road, Andheri East,
Mumbai -4000093.
EAST INDIA OFFICE
Mr. Avik Sarkar
Mobile No.: +91 8929802903, E-mail: asarkar@infomerics.com
Office No.: 033-46022266,
Branch office Address: 202, 2nd Floor, Justice Court,
2/3 Justice Dwarkanath Road, Near Elgin Road Lee Road Crossing,
Kolkata-700020.
AHMEDABAD OFFICE
Mr. Dheeraj Jaiswal
Mobile No.: +91 8929802910, E-mail: djaiswal@infomerics.com
Branch office Address: Banglow No. –4, Rajtilak Banglow, Opp I.O.C. Petrol Pump, Bhopal
Ahmedabad – 380058
Disclaimer
‘ Infomerics Valuation And Rating Private Limited has taken due care and caution in preparing the report and information is based from sources which it believes to be reliable and
authentic. However, Infomerics Valuation and Rating Private Limited does not guarantee the accuracy, timeliness, adequacy or completeness of any information and is not responsible
for any errors or omissions. Use of information and data contained in this report is at user’s own and sole risk.The management of Infomerics Valuation and Rating Private Limited are
not liable for the results obtained and interpreted from the use of such information.’