High crude oil prices, weak ~ to make synthetic fabric and textiles costlier

Synthetic fabric and textiles are likely to become costlier by 2-5 per cent owing to rising raw material prices following crude oil price hikes and a weak rupee.

Synthetic yarn is made from petrochemicals such as DMT and PTA, which are refined from crude oil, and domestic makers of these raw materials usually price them at import price parity. Prices of these raw materials for synthetic yarn are rising in the Indian market.

The spurt in raw material prices is an indication of a proportionate increase in cost pressure for user industries. Brent crude ($/bbl) Rupee dollar spot Prolypropylene* LLDPE* Apart from that, the steep depreciation in the rupee against the dollar is set to make the import of raw materials costlier, compelling synthetic textiles manufacturers to raise product prices.

“Rising raw material prices and the rupee depreciation are going to make textile products costlier. The synthetic textile industry is working on a waferthin margin. Since there is no room for the industry to absorb the raw material price hike, the cost push has to be passed on to consumers,” said O P Lohia, managing director, Indo Rama Synthetics (India), one of India’s largest producers of synthetic textiles.

The benchmark Brent crude oil prices have jumped by a staggering 12.9 per cent in the past one month to trade at $78.9 a barrel on Tuesday. Also, the rupee has depreciated by 4.1 per cent in the same period to quote at 72.9 against a dollar on Tuesday.

Meanwhile, the Union Ministry of Agriculture has estimated India’s cotton output at 34.89 million bales (one bale = 170 kg) for the crop year 2017-18 (ending September 2018). For the ongoing kharif sowing season, however, pink ballworm attacks are set to affect 10-20 per cent of India’s cotton crop area, which is 12.06 million hectares as of September 14.

With the demand from China set to increase because the US has imposed a heavy import duty on Chinese cotton and output in Pakistan expected to decline by a fourth, fibre prices are likely to remain elevated.

“With limited supply in the market during H1 cotton season 2018-19 on account of increased orders from China, prices are expected to register a growth rate of 5-7 per cent and reach ~122-125 per kg during this period and the average at ~127-130 per kg for the season 2018-19, registering yo-y growth of about 9-11 per cent,” said Madan Sabnavis, chief economist, Care Ratings.

Synthetic fibre and yarn prices may remain firm with its consumption to be partly replaced with derivatives of the natural fibre.