Falling Prices And Rising Interest Rates Push India'S Cotton Textile Enterprises To The Abyss

Credit rating agencies ICRA The India spinning industry is facing a challenging environment again after a brief and sharp rise, because cotton prices have dropped sharply since April 2011 and interest rates have risen, according to the company. According to the ICRA statement, the price of cotton has collapsed just after the supply season has come to an end. Raw material The problem of practice.

In 2010-11, cotton prices more than doubled, from 74 rupees / kg in March 2010 to 176 rupees / kg in April 2011, mainly due to active demand and limited supply, and the main cotton producing countries such as China, Pakistan and the United States had bad weather. The rise in yarn prices, coupled with the low cost inventory purchased by factories from October 2009 to March 2010, increased the average operating profit of spinning enterprises from 14.5% in 2009-10 to 17.5% in 2010-11 years. However, profitability declined in the fourth quarter of 2010-11, because India banned cotton yarn exports from January 15, 2011 to March 31st. In the two and a half months, there was no export of cotton yarn. During this period, the industry used high priced cotton to produce yarn. They expected that the global market would become stronger after the export ban was lifted.

　　 Rupp It is the largest export center for knitwear. Due to a 10% consumption tax on brand clothing, local printing and dyeing enterprises went bankrupt, resulting in a weak domestic market demand. So at the end of March 2011 /4, factory inventory was piling up. At present, the high priced cotton used by spinning enterprises is purchased in the last quarter. The factories are hoarding large quantities of finished yarn to be sold, and the profitability of the enterprises in the 2011-12 years will be squeezed.

The rising interest rate in the domestic market may further exacerbate the situation. Highly leveraged capital structure and rising interest rates will lead to greater risk of default in the spinning industry. Mr. Rohit Inamdar, senior vice president of ICRA, said spinning mills may find it difficult to recover their costs in the two quarter of 2011-12, because the yarn production used high priced cotton purchased from October 2010 to March 2011. In order to maintain a healthy balance sheet, it is a key factor for cotton to gradually improve the price difference between cotton and cotton and the optimum utilization rate of capacity.

ICRA expects that the situation will not improve until November 2011 / December, as factories may use this period to digest their current cotton stocks. Since then, new flowers have entered the market, and the price of purchasing new flowers may be more reasonable. Domestic market demand is expected to improve in the second half of fiscal year 2011-12, and export market is also the same. Factories will replenish the inventory gradually decreasing in circulation channels.

In addition, the central government recently decided to resume preferential treatment of cotton yarn and cotton export tax credit bankbook (DEPB), which came into force in April 1, 2011 and October 1, 2010 and abolished export restrictions. These measures may slow down pressure and help stabilize cotton and cotton yarn prices. Although the operating profit of cotton spinning enterprises may still be under pressure in the short term, it is easy to buy raw materials and labor cheap advantages, which will provide long-term support for the expansion of cotton spinning enterprises.