Even as India”s cotton yarn exports to China have declined to around 20 per cent due to lower demand, the country could still benefit following the low-cost raw material availability and presence of its textile players in the US, according to a report.
Indian yarn players have high export dependence on China, which reduced to around 20 per cent in the three months ended June 2020, on account of a lower demand and growing competition from Vietnam and Pakistan, India Ratings said in the report.
However, the trade-war (between the US and China) 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 8-10 million bales.
Ind-Ra said countries such as 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 presence of Indian textile players in the US, it added.
The agency said the shift in demand could lead to a healthy recovery in credit metrics and ease of liquidity stress for exporters in 2020-21, the Ind-Ra report added.
Meanwhile, the rating agency further stated that the Withhold Release Order on cotton and apparel imports from specific producers in Xinjiang Uygur Autonomous Region (XUAR) might escalate global trade tensions and thus have negative implications on the Indian textile sector in the short run.
However, it could be beneficial in the medium term, Ind-Ra added.
There is a risk of further sanctions by the US government on curbing imports of the products originating from or having linkages with XUAR, Ind-Ra said.
Further, the report stated that 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.
The US imported USD 7.35 billion of apparel products from China during January-July 2020, while China exported around 20 per cent of its overall apparel exports to the US in the first quarter of 2020-21.
The report stated that any impact on the China textile industry would flow down to Vietnam directly, impacting capacity utilisations.
Given that Vietnam”s textile industry has strong dependency on China, it is equally vulnerable to have supply chain linkages with the tainted XUAR region, the report stated.
Vietnam may cater additional cotton yarn production of around 0.4 million tonnes to meet Chinese demand.
However, incremental cotton or yarn sourcing could be from India, given the logistic and cost advantage.
During the calendar year 2020, India exported 8 per cent of its total cotton produce to Vietnam, the Ind-Ra report said.
While China”s woven apparel exports to Vietnam increased during the fourth quarter of 2019-20 and first quarter of 2020-21 by around 61 per cent, veiled shipments have helped it to avoid the additional tariffs imposed by the US in the past year.
Shipments from Bangladesh to the US also recovered in the second quarter of 2020-21 with a jump in the overall market share.
Additionally, severing of ties by global retail brands such as H&M, Lacoste with China on account of labour issues along with the ongoing US-China trade war has benefitted Indian ready-made garment (RMG) exporters in the form of additional orders.
The agency believes that the vacuum space created would be positive for Indian RMG exporters and help them to tide the impact of pandemic for 2020-21.
Further, the home textile segment has reported increased inquiries from the US for sourcing diversification, it added. PTI