The global textile industry is currently grappling with a significant challenge: declining demand for yarn. This reduction in demand has a cascading effect on various aspects of the textile supply chain, from raw material prices to export volumes and market dynamics.
Declining Yarn Demand and Its Direct Impact
The muted demand for yarn has notably impacted cotton prices in India. For instance, cotton candy prices experienced a marginal decline of -0.38 percent, settling at 57,140 INR. This drop is primarily attributed to sluggish milling demand, driven by the global downturn in yarn demand. Additionally, the prospects of a better cotton crop in countries like Australia have added further pressure on prices.
Regional Market Variations
Despite the overall downturn, the downside for cotton prices in India has been somewhat limited due to continued strong demand from international buyers, particularly in Bangladesh and Vietnam. These countries' demand has provided some support to the Indian cotton market, even as the global yarn demand remains low.
Projections and Market Dynamics
Looking ahead, the International Cotton Advisory Committee (ICAC) has projected increases in the cotton-producing area, production, consumption, and trade for the upcoming season. This forecast indicates a potential recovery and optimism in the cotton market despite current challenges.
Impact on India's Cotton Stocks and Exports
India's cotton stocks are expected to decline significantly in the 2023/24 marketing year, reaching their lowest level in over three decades. This reduction is due to lower production coupled with rising domestic consumption. Consequently, this decline in stock levels is anticipated to limit India's cotton exports, potentially supporting global prices. However, it also poses a risk to domestic prices and could negatively affect the margins of local textile companies.
Future Outlook for Cotton Production and Consumption
For the 2024/25 marketing year, India's cotton production is estimated to decrease by two percent as farmers shift acreage to higher-return crops. On the other hand, mill consumption is forecasted to increase by two percent as yarn and textile demand improve in major international markets. This shift is likely due to the projected improvement in global yarn demand, which could bolster the textile sector.
Import and Market Trends
Furthermore, import duties on extra-long-staple cotton have been rescinded, leading to a projected 20 percent increase in imports. This policy change is expected to influence domestic cotton prices and availability, potentially easing some of the pressures on local textile manufacturers.
Technical Market Analysis
From a technical standpoint, the market has shown signs of long liquidation, evidenced by a drop in open interest and declining prices. Key support levels for cotton candy prices are identified at 57,000 INR, with potential tests at 56,850 INR, while resistance is anticipated at 57,300 INR. Traders are advised to monitor demand trends, production forecasts, and international market dynamics closely for insights into future price movements.
In summary, the low global demand for yarn is significantly affecting the global textile export market. While some regions continue to show strong demand, overall production adjustments, stock declines, and shifting market dynamics paint a complex picture for the future. The industry's ability to navigate these challenges will depend on various factors, including international trade policies, market trends, and strategic adaptations by textile producers.
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