Cotton prices cast shadow on polyester

Dilip Kumar Jha & Komal Amit Gera / Mumbai December 1, 2010, 3:37 IST

Skewed demand for synthetic yarn by textile producers, following a dramatic escalation in cotton prices, has opened opportunities for man-made fibre producers. India’s largest corporate Reliance Industries Ltd (RIL) will benefit most from the trend.

Faced with enormous demand from both domestic and overseas markets, RIL, which currently monopolises the fibre market, has raised prices by over Rs 3 per kg across all products effective Tuesday.

With the revision, the benchmark 115/34 semidull variety of partially oriented yarn (poy), used to produce polyester yarn, shot up to Rs 96.49 per kg from Rs 93.11 per kg a week ago. The prices of polyester staple fibre has been revised upwards by Rs 6 per kg to Rs 93 per kg.
The biggest problem for domestic synthetic yarn manufacturers is that RIL, according to market sources, do not entertain them as it prefers the more remunerative export market. According to industry sources, RIL has signed huge supply orders with buyers in China and Pakistan — the two countries that remained short supplied of cotton and, most importantly, compete with India in the global markets.

“Many south-based synthetic yarn manufacturers met RIL officials late last week, seeking supply of poy from the company but, their requests were turned down,” said a senior industry executive who was involved in the discussion.

Prices of man-made fibre which ideally should be linked with the movement of crude oil prices, have abnormally gone up in tandem with cotton yarn prices in the last one year.
While cotton prices have been revised from Rs 2,700 to Rs 4,400 per mound this year (now Rs 4,200 per mound), polyester prices have risen sharply — from Rs 63 per kilogram in September to Rs 110 per kilogram in November.

However, cotton prices are softening due to higher availability with ginners. Owing to unseasonal rainfalls last week, many ginners could not process and transport cotton. This lead to a huge stock, which will start rolling out in the market by January. By January-end, the industry will see a price decline of nearly 20 per cent, said Sunil Khandelwal, chief financial officer, Alok Industries Ltd.

“Due to pressure on margins, quite a few players have partially diversified their capacities for polyester cotton blended yarns. Spinners have been replacing cotton with polyester and viscose for manufacturing cotton-blended yarn. The manmade fibre was cheaper than cotton. But the consistent increase in demand for the manmade fibre across the world pushed up the cumulative demand and drove up the prices,” said Sanjay Nayyar CEO of Confederation of Indian Textiles Industry.

The sudden jump in the demand for man made fibre is not supported by the increase in production of raw materials for the man-made fibre and resulted in a disequilibrium in demand and supply.
V K Ladhiya, the chairman of Indian Spinners Association, told Business Standard that the availability of PTA and MEG (raw material for polyester) is limited. The global capacities are limited but the demand has gone up.
He also said that manufacturers lost money in investments for producing the raw material for the man-made fibre in the past. As a consequence, they recalled some of the investments. Now that consumption has increased, the prices have gone through the roof. The price of inputs for polyester have been revised by 20 per cent to 30 per cent.

The total annual consumption of fibre in India is about seven million tonnes. The largest chunk of this consumption is of cotton (about 3.2 million tonnes) followed by polyester (2.5 million tonnes), 0.5 million tonnes of rayon and about 80,000 tonnes of acrylic.
The man-made fibre could have provided some cushion to the spinners while the cotton prices were high. But the incredible increase in price of polyester fibre has put the textile industry in a tizzy.


Source:http://www.business-standard.com/india/news/cotton-prices-cast-shadowpolyester/416666/