Parul
A latest report on the textile industry by India Ratings and Research (Ind-Ra) states that the US withhold release order on cotton and apparel imports from specific producers in Xinjiang Uygur Autonomous Region (XUAR) may escalate global trade tensions and thus have negative implications on Indian textile sector in the short run.
However, it could be beneficial in the medium term, added Ind-Ra.
There is a risk of further sanctions by the US government on curbing imports of the products originating from or having linkages with XUAR. Furthermore, importers in the US are likely to be concerned about any economic, legal or reputational concerns on any of their supply chains linked to XUAR.
This action may have spooked China and it could resort to retaliatory measures. Cotton procurement from the United States could be delayed by Chinese mills, leading to favourable supplies from Brazil and India — both of which are likely to have high inventories.
While demand from the United States could impact overall cotton demanded by China, the value-addition could gradually move out of China to other geographies. However, this is more of a medium term-phenomenon.
Indian yarn players have high export dependence on China (FY16 to FY19: around 30 per cent) which reduced to around 20 per cent for the three months ended June on account of lower demand and growing competition from Vietnam and Pakistan.
The trade-war extension and labour related issues could lead to the creation of additional yarn and cotton demand from neighbouring countries to the tune of 0.5 million tonnes and 8 to 10 million bales.
Ind-Ra said countries like Pakistan and Brazil have a pole position compared to India due to their preferential status. However, India can get a share of the pie, given the low-cost raw material availability and established the presence of Indian textile players in the United States.
The agency viewed the shift in demand could lead to a healthy recovery in credit metrics and ease of liquidity stress for exporters in FY21.
