Rising crude inputs squeeze Indian polyester yarn margins: CRISIL

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Escalating West Asia tensions have pushed global crude oil prices into the $80-85 per barrel range, sharply pushing up feedstock expenses for Indian polyester spinners. Petrochemical inputs including purified terephthalic acid (PTA) and monoethylene glycol (MEG) are 65 per cent of overall yarn production costs.

A report from CRISIL Ratings analyzing 20 major manufacturers accounting for 40 per cent of sector revenues shows, domestic polyester yarn volumes are projected to fall 2-3 per cent this fiscal following a steep 20 per cent volume decline in the first quarter.  To protect downstream weaving and garmenting demand from severe dip, spinners are restricting average price increases to 6-7 per cent, absorbing partial cost pressure and causing operating margins to decline by 100-150 basis points to 5.0-5.5 per cent.

Shounak Chakravarty, Director,  CRISIL Ratings states, in an effort to recoup lost volumes, players are expected to adopt a measured approach while passing on input cost increases to consumers, thereby limiting volume de-growth to 2-3 per cent for this fiscal. Consequently, manufacturers are reducing working capital requirements by trimming inventory holdings by 25 days down to a 30-day average, while restricting capital expenditure to routine modernization to preserve balance sheet strength.

India’s synthetic textile sector produces polyester filament yarns and staple fibers for domestic weaving mills and global export markets. Formed during post-liberalization industrial expansion, the industry focuses on routine machine modernization and inventory control to sustain healthy cash flows and manageable debt coverage despite energy market volatility.