Coupled with Reliance's much-touted strategy of large-scale pre-emptive capacity creation, the recent price hikes may deal a death blow to the smaller yarn manufacturers.

The yarn-makers may cut production by as high as 15-20 per cent since they are not favourably placed to hike the prices. The total blended yarn capcaity is five lakh tonnes per annum. The situation will be further aggravated if the polyester staple fibre manufacturers resort to another hike levearging on the sharp depreciation in the currency and protection due to eight per cent acorss-the-board import duty.

The man-made fibre industry enjoyed a protection of 35 per cent before the budget and additional import duty in the recent budget gives it a protection of 50 per cent, say industrysources. Taking all factors into condsideration including customs duty and special customs duty, the effective protection for PSF manufacturers works out to be 13.4 per cent and not 8 per cent as is made out to be, they add.

Manufactureres were hitherto resorting to cheaper imports and the present scenario may trigger a shakeout in the industry. The most severly affected will be smaller players in the industry like Thirupati Fibres and LD Textiles. Thirupati fibres is running only partially and LD Textiles is belived to be on the verge of closure. The players like Orient Syntex and Jaipur Syntex have already shut down their operations. The bigger players like S Kumars, Gwalior Rayon will have to chalk out a fresh strategy to combat the present crisis, sources said.The crisis will have its adverse reprucussions on the exports of blended yarns and fabrics, which has been growing at a healthy rate of 15 per cent per annum. The sharp devaluation in the currency of Pakistan may also contribute to a decline inexports, which is still less than a third of exports of cotton textiles.

At present, the synthetic textile industry is reeling under a severe demand recession and is incurring heavy losses. The standard 30s count single yarn conatining 65 per cent polyester and 35 per cent viscose is presently seeling at about Rs 88 a kg, including an excise duty of 20.70 per cent.In the world textile trade, the shrae of synthetcis and blends is about 50 per cent. However, the synthetic textile account only less than a fourth of all textile exports in the country. India's total consumption of man-made fibres is currently at a level of 15 lakh tonnes while China produces over 30 lakh tonnes.

INSIGHT -- High volume offsets price slump

The results of the petrochemicals major has shown that volume sales compensated for the fall in prices. Moreover, the drop in prices of PFY, PSF has seen polyester replacing accetate and nylon fibres thus increasing its over all consumption. In addition the drop in prices actuallybenefited Reliance as it was able to increase its market share at the cost of smaller players who had to close shop as their cost of production was higher.

However, the present price rise may result in lower consumption of polyester fibres. Moreover, there is a chance that some of the units which were running at low capacities would be able to offset their cost disadvantage at the present enhanced price, and take some market share back from Reliance.