The combined production of the two companies has come down to 12,078 tonnes in February 1999 from 13,026 tonnes in November 1998. The situation has become so dire that unsold stocks in the industry total 9,499 tonnes (equivalent to 28 days of production), industry sources said.

Production for January 1999 was 13,718 tonnes with stocks piling up to 10,298 tonnes. Industry's production for the period between April-December 1998 was around 1,37,565 tonnes, much below the total capacity of 3,05,000 tonnes, sources said.

Demand decline has been caused by the steep rise in imports from South East Asia. Despite offering discounts, the threat from imports is still affecting the industry. Despite hectic lobbying by domestic manufacturers, the budget failed to provide relief to the industry, sources said.

While increasing importshave been affecting domestic VSF demand to a large extent, preference for polyester staple fibre (PSF) due to relatively lower prices has also contributed to the recent glut. PSF prices are ruling at Rs 41 per kg against a higher VSF prices of Rs 64 per kg.

Unlike PSF players, viscose staple industry players cannot afford to reduce prices, observers say. Hence, the poor offtake of VSF seems to suggest that the user industry has been by and large shifting to using PSF, which is cheaper and far more versatile than VSF.

The hypothesis of shift from VSF to PSF can be checked in two ways. One, the growth in consumption of PSF has been more than 15 per cent per annum and that of VSF less than 1.5 per cent, analysts say. Two, the investments for new capacities across the world have been far more in polyester derivatives compared to wood-based derivatives.