Spinning mills’ margins to recover in Q3
increase in sowing area in CY2018. Although weather conditions have been largely favourable, erratic monsoon in southern and central India, flooding in some regions of North Gujarat (the largest cotton-producing state) and pest problems in some areas might impact average yield.
The yields are expected to be lower compared to 531-kg per ha reported in the previous season. Even with 505-kg per ha, which is close to the average of the past three years, the cotton crop output is expected to grow five per cent to 36 million bales (1 bale=170 kg each) in CY2018.
Meanwhile, fall in yarn realisations has preceded a decline in cotton-fibre prices, which has affected margins of spinners in recent weeks, and is likely to reflect in their third quarter performance. “However, with further correction in cotton prices expected with the commencement of harvest season in October onwards, profitability of spinners to improve during the second half of the current financial year,” said an analyst.
Cotton stocks in China continue to be higher than historical averages. According to estimates, it will take two to three more years for excess stocks to reach historical average levels and an import revival.
Nevertheless, with conclusion of this year’s auctions, a recovery in yarn demand from China is likely to help Indian yarn exporters in the second half of FY18.