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Synthetic yarn makers face loss amid falling crude oil prices

Continual fall in crude oil prices in last few months has led to domestic synthetic yarn makers incurring stock and margin losses. Fall in prices of petrochemicals including key polyester yarn raw materials such as monoethylene glycol (MEG) and purified terephthalic acid (PTA) forced yarn makers to reduce prices, thereby incur loss over the inventory.

As per the monthly Platts Global Petrochemical Index (PGPI), prices in the $ 3-trillion-plus global petrochemicals market extended its fall by 4% in October, as upstream energy prices continued to slide. Petrochemical prices, expressed as a monthly average, fell to $ 1,324 (Rs 84,000 roughly) per metric ton (/mt) from $ 1,384/mt (Rs 88,000) in September.

“Brent crude oil prices have now fallen below $ 60 a barrel. In the last two month, the continual fall in crude oil prices have led to fall in prices of polyester yarn as well as its raw materials like PTA and MEG by anywhere between 10% and 25%. However, yarn makers had held stocks at $ 115 a barrel levels and are now incurring loss on stock and margins,” said Jyotiprasad Chiripal, director at Chiripal Group.

Industry sources now quote price of texturised roto-80 benchmark synthetic yarn at Rs 100-110 per kg levels, as against the Rs 130 per kg levels 2-3 months ago.

Adding to the woes of synthetic yarn makers is the sluggish demand among mills, said Jayesh Pathak, president of the Bombay Yarn Merchants Association.

“Yarn prices have fallen by 25% in last two months. While usually fall in crude oil prices, followed by raw material prices are beneficial to synthetic yarn makers, as of now we are incurring loss of margins and stocks since the current inventory is valued at over $ 100 a barrel levels of crude oil. Add to that, demand is also sluggish among textile mills who are in a wait-and-watch mode and are hoping for further fall in crude oil prices,” said Pathak.

However, Makarand Appalwar, managing director of Emmbi Industries Ltd, a synthetic yarn maker, the loss of stock and margins is being borne by yarn makers who are mostly exposed to domestic market.

“Those focused on exports are still safeguarded since contracts have been hedged at over $ 110 a barrel levels. Nevertheless, there is a high level of uncertainty and it is not good for yarn manufacturing industry as of now,” Appalwar added.

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