Cotton spinners in India are grappling with the twin challenges of weak export demand and uncompetitive cotton prices. The impact is likely to be more pronounced for leveraged companies that have undertaken a sizeable debt-funded capital expansion in recent years and have higher repayments scheduled in the near term.

With India exporting roughly one-third of its cotton yarn production every year, trends in export demand play a crucial role in determining the overall performance of the domestic spinning sector. India’s cotton yarn exports declined 33 per cent in the first quarter and stood at a seven-year low in June 2019. As a result, spinning mills have had to face stock pile-ups and resorted to production cuts. As compared to a 50 per cent decline in cotton yarn exports to China during the first quarter, exports to other markets too declined by 20 per cent.

The pressure is primarily originating from higher cotton prices in the domestic market, which has made Indian yarn manufacturers uncompetitive in international markets. As a result, the near-term outlook on Indian cotton yarn exports is quite weak at present. Even otherwise, a large proportion of spinners has not undertaken capacity expansions in recent years, given the discouraging demand trends.