| Indian cotton yarn industry is likely to improve its profitability because of the softening of cotton prices, said a research report prepared by CRIS INFAC, a subsidiary of rating agency Crisil Ltd.
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| Domestic consumption of cotton yarn is likely to register a compounded annual growth rate of 6.2 per cent until 2005-06, the report said.
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| The report noted factors such as bumper cotton production leading to low prices, favourable government policies, and high polyester prices as some of the reasons for cotton yarn being price competitive.
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| The removal of quota restrictions provides strong growth opportunities for cotton textiles and consequently, a boost for cotton yarn, the report said.
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| It said that yarn prices have almost remained firm while cotton prices have softened, thereby resulting in improved margins for spinning companies. "We expect spinning companies to improve their profitability in 2005-06," said the CRIS INFAC report.
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| As to polyester prices, which is a competing yarn, it said the surge in feedstock costs and the new duty structure have eroded the price competitiveness of polyester filament yarn and polyester staple fibre.
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| Incidentally, the last union budget abolished excise duties on cotton yarn and rationalised the duty structure in case of polyester.
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| CRIS INFAC is predicting an export growth of 15% in garments that will lead to a derived demand for an additional 200 million kilograms of yarn.
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| On the removal of quota, the CRIS INFAC report said cotton yarn exports are directed to the erstwhile non-quota markets. Quota markets like U.S., E.U. and Canada accounted for less than 10% of the total yarn exports. |
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