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Cotton yarn exports are expected to record a degrowth of 28-30% in FY23 due to high cotton prices and weakening export demand, CareEdge Ratings said in a report on Thursday. It added that the exports declined by 59% in H1FY23 to 2.89 lakh tonne (6.95 lakh tonne in H1FY22).

“India’s cotton yarn exports during H1FY23 have been hit, as domestic cotton prices remained high, impacting India’s competitiveness globally. Exports in cotton yarn witnessed a downward trend from January 2022 onwards, further aggravated by a slowdown in global demand. Furthermore, H2FY23 is expected to remain muted for cotton yarn exporters due to the weak demand, resulting in lower capacity utilisation and higher cotton prices as compared to pre-covid levels," the report said.

“Margins of cotton spinners are expected to fall 5-7% due to the weakening of demand and continued high prices of raw cotton. The decline in margins, however, will be restricted by the expected higher cotton production in the new cotton season of 2022-23, which could result in softening of cotton prices," it added.

Though raw cotton prices cooled down to 65,000 per candy in October as against a peak price of 1.10 lakh per candy, the rates are still higher than pre-Covid levels. 

“CareEdge expects 28-30% degrowth in the export volume of cotton yarn in FY23, impacted by high prices and global headwinds. The margins of spinners are expected to decline by 5-7% due to lower capacity utilisation and continued high raw cotton prices. The decline in margins, however, will be restricted by higher cotton production in the new cotton season 2022-23, estimated at 360 lakh bales, and further correction in cotton prices," said Arti Roy, Associate Director, CareEdge. 

According to the report, the Cotton production in India has reduced from 352 lakh bales in 2020-21 to 315 lakh bales in Cotton Season (CS) 2021-22. The domestic price of cotton increased by 39% from 110 per kg (medium staple) in CS 2020-21 to 154 per kg in CS 2021-22. After recording a peak cotton price of more than 1.10 lakh per candy during FY22, the prices have started to moderate and have corrected to 65,000 per candy in October 2022. 

CareEdge believes that cotton prices will moderate further with the expectation of higher cotton arrival in CS 2022-2023, although it will remain higher than the pre-Covid levels.

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