India Continues as a Net Importer of Polyester Yarn in 8M FY24

In the fiscal year 2023 (FY23), India witnessed a notable shift in its polyester yarn trade dynamics. Imports surged by a substantial 65%, while exports faced a stark decline of 38%, marking the country as a net importer for the first time in a decade. This trend extended into the initial eight months of FY24. The root cause of this transformation lies in China's surplus production driven by its stringent zero-COVID policy.  

The flood of inexpensive polyester yarn imports from China inundated the Indian market, dealing a blow to the profitability and export volumes of local manufacturers. The oversupply triggered by China's abundance disrupted the pricing dynamics, putting significant pressure on Indian producers. This phenomenon is not an isolated event but part of a broader narrative. During the calendar year 2022 (CY22), global fiber production hit 116 million tonnes, with polyester fiber claiming a substantial 54% share. In this landscape, China, as the dominant player, cast a long shadow over India, the second-largest producer in the global polyester yarn market.

As we delve into the intricacies of this shift, it becomes evident that the economic tides in the polyester yarn industry are undergoing a significant transformation, propelled by global dynamics and the strategic choices of major players. The implications of these changes extend beyond borders, impacting the fortunes of manufacturers and the trajectory of trade relationships.  

India annually produces 4.5 to 5 million tonnes of polyester yarn, with a significant chunk, over 80%, catering to domestic demand. However, the dynamics of India's polyester yarn trade experienced a seismic shift in FY23. This transformation was primarily steered by China's unyielding zero-COVID policy, which, despite a slower economic recovery, kept its manufacturers in full swing, resulting in a surplus of polyester yarn.

Authoritative reports reveal that this surplus from China found its way into global markets, including India, causing a notable disturbance in pricing dynamics. The lower prices associated with the dumping of excess polyester yarn became a challenge for Indian manufacturers, influencing the balance between domestic production and international trade. This scenario not only underscores the intricacies of the textile industry but also sheds light on the interconnectedness of global markets. The impact of China's policies on its domestic production resonates far beyond its borders, leaving a distinctive mark on the trade dynamics of nations heavily reliant on the textile and polyester yarn sector.

In FY23, the robust operating profitability that marked a positive trend for Indian polyester yarn players in FY21 and FY22 faced a downturn. Despite earlier success driven by healthy sales volume growth and increased average sales realization, the industry encountered challenges from cheaper imports, impacting the profit before interest, lease rentals, depreciation, and taxation (PBILDT) margin. While the industry's capital structure remained stable, with total debt to PBILDT ratios better than historical levels, the competition from inexpensive imports led to a decline in average sales realization. The total outside liabilities to total net worth (TOL/TNW) ratio stood at a comfortable 0.81x as of March 31, 2023, reflecting the industry's resilience.

To address the issue of inferior quality imports, the Indian government implemented a Quality Control Order (QCO) on polyester yarn, covering fully drawn yarn (FDY) and partially oriented yarn (POY). The Bureau of Indian Standards (BIS) played a pivotal role in ensuring adherence to these standards, with the implementation initially slated for April 2023. However, due to postponements, it took effect from October 5, 2023, resulting in a surge in imports in September 2023 and a subsequent significant decline of nearly 60% in November 2023 compared to the previous year.  

Looking forward, polyester yarn imports are expected to decrease, which will create opportunities for Indian industry players to adjust prices and increase average sales. The polyester yarn spread is expected to see improvement, with a gradual uptick in PBILDT margin from Q3FY24 onwards. A more significant improvement is anticipated from Q4FY24, driven by a resurgence in domestic demand in key markets such as China, the US, and Europe, which is expected to narrow the demand-supply gap and rekindle export demand for Indian polyester yarn manufacturers.