As per an India Ratings and Research report, China’s demand for India’s cotton has pushed domestic yarn prices higher. Led by a strong export and moderate domestic demand during December 2020, India’s yarn production increased in January 2021.
Exports during the month increased in high single digits YoY due to healthy demand from neighboring countries. Cotton yarn prices increased 15 per cent MoM and 30 per cent YoY, resulting in higher gross margins. Higher cotton yarn demand is attributed to the global supply curbs on Xinjiang region (China) cotton, which is benefitting Indian domestic spinners. The report estimates exports to be moderate during January-February 2021 with likely shutdown of mills ahead of Chinese new year. It expects demand to resume by March 2021. As a result of this expectation, cotton prices surged by 7-10 per cent MoM during January 2021, led by a strong export demand for cotton yarn.
International prices rose 13-17 per cent YoY, led by the buoyant China demand for US cotton, which is having a rub-off effect on cheaper Indian cotton prices. However, apparel exports declined in December 2020, after recovering over September-November 2020 on a YoY basis due to the impact of a second wave of COVID-19 in the US and Europe.
As per the report, this would also impact the near-term order book position of ready-made garment exporters for the upcoming fashion season. Already in November 2020, knitted apparels volumes remained stagnant with realizations gaining by high single digit yoy basis; on the contrary, woven apparels volumes increased by 8.2 per cent and realisations fell substantially yoy basis. During 2020, India exports to the US fell by 20-25 per cent YoY in both volume and value terms, the report said.