Synthetic yarn makers have seen sluggish demand and inventory losses in the first two quarters of the current financial year. Besides, there has been a rise in Chinese dumping of yarn in India. Prices of raw materials have dipped in the third quarter due to a fall in crude oil prices. This would most likely improve margins for yarn makers and ease costs for them in the second half of current financial year.

Polyester fibre prices came down from roughly Rs 107 per kg to Rs 86 per kg in October. This has already resulted in synthetic yarn prices responding with a Rs 3 to 4 per kg improvement in average prices, raising it to Rs 174 to 175 per kg. K Selvaraju, Secretary General of Southern India Mills Association (SIMA) feels the next quarter may improve the situation for synthetic yarn makers, with mills raising demand gradually. Mills were also bleeding, resulting in loss of margins for synthetic yarn makers for the first two quarters and many were even incurring cash losses.

Fall in crude prices and industry over-capacity resulted in polyethylene terephthalate (PET) chips prices falling to Rs 64 per kg in March from Rs 87 per kg in the previous year, while the price for partially oriented yarn (POY) fell 22 per cent year-on-year (y-o-y) in March 2015 to Rs 76 per kg according to an India Ratings & Research report. PET is an important raw material for man-made yarn.

Moreover, the extension of a two per cent duty drawback on synthetic yarn and other products, by the government recently, would also improve the scenario for the industry in the near future.