ICRA’s research update on Indian spinning industry indicates, slow growth in domestic consumption and exports will pose a challenge for profitability of spinners if the demand growth remains muted in FY17.

High dependence on exports to China and resulting sensitivity of India’s exports to China’s policy on reserve cotton stock has always warranted a cautious outlook on India’s yarn exports, says the report. Anil Gupta, AVP, Corporate Sector Ratings, ICRA points out, the slow pace of growth in spun yarn production has been driven by factors like tepid domestic consumption and limited growth in exports. With cautious outlook on cotton yarn exports, domestic demand growth will determine the production growth going forward.

As per ICRA estimates, the domestic consumption growth for FY16 is expected to be 1.4 per cent (7.6 per cent in FY15) for cotton yarn and 3.1 per cent (6.3 per cent in FY 15) for spun yarn. This is the lowest level of domestic consumption growth since FY2013. The growth in cotton yarn exports has also been slow with exports of 1,302 million kg in FY16, which reflects 3.7 per cent growth (47.5 per cent and 18.3 per cent growth witnessed in FY13 and FY14).

Industry has witnessed slowest pace of production growth in FY16 in terms of cotton yarn production growth, which is estimated to have grown by 2.0 per cent to 4,136 million kg and is lowest in last four years. Cotton yarn production had grown by 14.6 per cent, 9.6 per cent and 3.2 per cent in FY13, FY14 and FY15 respectively.