India's polyester market: Navigating growth amidst import dependency

India, one of the largest textile value chains in the world after China, remains among the most fragmented industries. With many smaller units performing different textile operations, the country faces a pressing need to update its textile processes.

India is intrinsically aligned with natural fibres and yarns for manufacturing textiles and apparel globally. Cotton and cotton apparel dominate the country's textile exports. However, as global trends shift, man-made fibres and yarns are becoming increasingly important, an area where India lacks the necessary technology and capacity. Therefore, revitalising its textile technology is essential for India.

In examining data over the past seven years, polyester yarn production grew at a compound annual growth rate (CAGR) of 2 per cent. However, while consumption is rising at a higher pace than demand, the country’s installed capacity must expand more rapidly. India's textile industry is expected to grow at a CAGR of 10 per cent. With increasing demand in the polyester market, both demand and production should rise accordingly.

Global polyester production trends

India and China are the largest producers and top exporters of polyester and related products worldwide. In 2023, China’s production of polyester filament yarn (PFY) grew by 15 per cent amid rising domestic demand, despite a bleak international outlook.

Exhibit 1: Production and consumption of PFY of India (in 1,000 tons)

Source: Ministry of Chemicals and Petrochemicals

Conversely, India, while the second-largest producer of polyester, is experiencing some contradictory trends. The country must import more due to insufficient production capabilities and a domestic supply chain unable to meet rising demand. India imports 15 per cent of its total polyester demand, and the price differential between imported and domestically produced polyester yarn is substantial, putting pressure on local producers and reducing their profit margins.

Capacity utilisation in the Indian polyester industry remains moderate, primarily due to limited capital expenditure by Indian companies. Increased investment is needed to boost production if the country is to compete with the influx of imported yarn.

Exhibit 2: Instaleed capcity of PFY in India (in 1,000 tons)

Source: Ministry of Chemicals and Petrochemicals

The country’s installed capacity has decreased by 2 per cent, while consumption is expanding at a CAGR of 4 per cent. This underscores the urgent need for increased capital expenditure to enhance production capacity in the near term. India is already grappling with excessive imports of PFY from China, leading to anti-dumping investigations and the imposition of quality control orders (QCO) on these imports. These measures have further complicated matters for companies, as they have made it challenging to import polyester yarn from alternative sources.

Exhibit 3: India’s Imports of polyester yarn (in$ mn)

Source: ITC Trade Map, F2F Analysis

However, the industry continues to face losses and procurement challenges, leading to significant blockages in the value chain. In response to the QCO, China has begun exporting fabrics to India, adding further strain. Recently, the government revised the QCO to exempt polyester yarn and fibre imports, provided there is one stage of value addition to the imported products before they are re-exported to their target destinations.

Exhibit 4: India’s imports of polyester yarn from China (in $ mn)

Source: ITC Trade Map, F2F Analysis

India's imports from China have surged over the past five years, with yarn imports increasing by 199 per cent CAGR and projected to grow by 53 per cent CAGR over the next two years. Setting aside the issue of dependence on China, this rapid increase highlights the importance of polyester as a material and the strong demand it currently holds. Consequently, it is crucial for India to enhance and expand its installed capacity. Sufficient investment and policy support are essential to drive further expansion in the sector. While India excels in manufacturing natural fibres, yarns, and fabrics, higher capacity should also be leveraged to reduce reliance on imported polyester yarns.

Companies producing polyester yarns

India has several companies with substantial capacity to produce polyester yarn domestically. Reliance Industries stands as the leading producer, holding a 45 per cent market share in India and a 4 per cent share globally.

Table 1: Annual Production capacity of different companies (in mn tons)

Source: Annual reports and websites of the companies

In India, polyester and viscose account for over 70 per cent of total man-made fibre (MMF) production, and demand for MMF is projected to grow by 3.5 per cent by 2025. This increase is driven by manufacturers' rising preference for recyclable materials and the ample availability of MMF. Additionally, the country has rationalised the inverted duty structure, which is expected to boost man-made textile production.

However, India needs to modernise its technology for producing polyester fibre and high-quality yarns. Embracing the sustainability trend is crucial, and technology upgrades are needed to support this shift. Despite policies like the National Technical Textiles Mission and Production Linked Incentive schemes for textiles and apparel, the industry still lacks comprehensive advancements in technology and traceability throughout the value chain.

Road ahead

The Indian textile industry, one of the oldest and economically significant sectors, has struggled to keep pace with technological advancements. The industry requires upgrades to meet global standards. The growing gap between the rising consumption of polyester yarns and stagnant installed capacity in the country will likely lead to shortages, increasing the influx of imported yarns and potentially undermining the competitiveness of domestic manufacturers. Additionally, the rationalisation of the inverted duty structure has impacted India’s capacity to produce polyester textiles.

As the global polyester market expands, it is essential for Indian manufacturers to maintain efficiency and competitiveness in the domestic market. The sector would benefit from enhanced research and development efforts. Since 2023, the government has implemented QCO orders for polyester yarn imports, aimed at reducing the influx of low-cost, lower-quality polyester yarn, thus enabling domestic manufacturers to secure fairer prices and recover profits lost to excessive imports in previous years.

It is also essential to note that India’s installed capacity for yarn manufacturing has declined and needs urgent expansion. This is crucial not only to meet domestic demand but also to supply the increasing demand from other textile-manufacturing countries.

Fibre2Fashion News Desk (KL)