MUMBAI, Feb 8: There was a time when everyone wore cotton, and synthetic clothing was considered exclusive. Time and technology have reversed that, and high margin, low-volume cotton textiles are now concentrated at the apex of the premium clothing market.Prices are a function of preferences and purchasing power. In the Indian textile industry, the price trends in the intermediates segments clearly reflect a shift in the price-quality perception of cotton clothing.
Synthetic intermediates purified terephthalic acid (PTA), partially-oriented yarn (POY) and polyester staple fibre (PSF) have, therefore, started showing price trends that underline how in these segments, high volumes and low margins are the order of the day. When partially oriented yarn prices shot up last week in Mumbai, the market players were not deceived for a moment on the longevity of the spurt. The rise, in some cases by as high as Rs 18 per kg (around 30 per cent) over the prices announced by companies on January 1, was quicklydismissed as short-term, and diagnosed soon as supply aberrations due to non-delivery by some smaller players.
Huge capacities set up in India and south-east Asia have created an excess of supply over demand. Companies like Reliance Industries have set up world-scale capacities, and are growing by sheer dint of volume (it recently commissioned its second 3,50,000 tonnes per annum PTA plant at the Hazira petrochemicals comlex, which follows commissioning of a similar-sized plant in January 1996). Smaller players are hard put to compete. The obvious result: falling prices. Yarn prices were reduced as recently as the first week of January from around Rs 60 per kg to Rs 55 per kg, and synthetic fibre prices were reduced from Rs 43.5 per kg to Rs 41 per kg. The recent south-east Asian crisis, creating the spectre of dumping at low prices by companies from that region exploiting low exchange rates, has further exacerbated the price situation.
Synthetic fibre prices have crashed 15 per cent in four weeks inIndia due to the Asian crisis. In the short-term, therefore, the low price realisation coupled with high raw material prices will create serious problems for fibre makers. Senior officials from DCL Polyester and Raymond have, however, said that they are not prepared to cut production just yet. There are nine major fibre manufacturers, and 34 yarn makers in India. Industry opinion on price trends is split. One section predicts a further 10 per cent fall, which will leave no option other than a production cut with fibre makers. Major producers such as Grasim and Indian Rayon are believed to be of the view that a further slump is inevitable. Yet another section believes that a production cutback would be ill-advised in view of the fact that demand is buoyant.
The free fall in the value of the south-east Asian currencies has made exports of companies based in the region competitive, forcing Indian producers to sell more in the domestic market. This has depressed local prices. Consequently, synthetic fibreprices began to fall sharply from mid-December. Senior industry sources expect exports in 1997-98 to remain stagnant at last year's level of around Rs 3,200 crore. Exports in the 1998-99 fiscal may fall if prices do not rise over the next few months, said an industry source.
The sudden decline in prices has adversely affected the prospects of the major players like DCL Polyester, Century Enka, Raymonds and Shree Synthetics.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
