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PSF Overview Suresh Khurana

CEO-Polyester Bombay Dyeing

Indian Polyester - 2015

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Contents:

Global & Indian Fibre – Overview PSF / Cotton correlation PSF / Cotton price trend Industry Structure Capacity Utilization Demand / Supply Scenario PSF Demand PSF Supply & Expansions PSF Industry’s Future PSF Outlook

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Global & Indian Fibre - Overview

• Global Fibre consumption is currently in the range of 87 MMT with 71% being Man-made fibre, 28% Cotton and other natural fibre only 1%. Polyester is the major component in the Man-made fibre sector. 54% of the global consumption is polyester.

• In India, cotton enjoys a dominant share in fibre consumption of about 54%, whereas

polyester’s share is 38%. Polyester has been gaining share at the expense of cotton and this switch is likely to accelerate over next 10 years.

• One third of total polyester fibre consumption globally comes from PSF and two third from filament sector. In India however, PSF occupies less than 25% of total polyester fibre consumption with balance 75% coming from filament sector.

• PSF consumption in India has significant growth potential from likely switch from cotton and also textile industry growing in use of spun/blended yarns more than filament. However, current indications are that weaving expansion is directed more towards filament than spun yarns.

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PSF/Cotton correlation

• Cotton has traditionally been a driver for PSF demand. It will continue to have

significant influence on PSF business, more particularly in Indian context. • Cotton production in last five consecutive seasons has remained higher than

consumption. Cotton production in 2014-15 was estimated at 26.3 MMT. Surplus cotton combined with the impact of Chinese policy of limiting cotton purchase resulted in soft cotton prices. This could have resulted in reduced PSF demand but fall in PSF prices in the backdrop of falling feedstock prices resulted in maintaining cotton/PSF delta and reducing the possible shift from PSF to cotton.

• Declining cotton prices globally have resulted in lower cotton acreage for next season

in major growing countries, which could lead to consumption being higher than fresh arrival of cotton. This could be encouraging for PSF business as tight cotton and higher cotton prices could lead to increased polyester demand.

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Cotton/PSF price trend

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Indian PSF Industry Structure

• Indian PSF industry with a capacity of 1.25 MMT/annum is self sufficient and is in a position to meet the entire PSF demand in the country.

• Not only the volume, PSF industry in India is producing quality and variety of PSF much

ahead of competition from China and South East Asia. • Nevertheless, imports which hitherto were insignificant have been gaining strength

and reached to 9% of total PSF consumption in India. • Industry which was exporting 20~22% of the production, increased exports to over

25%. However, changes in GOI Exim policy has been a dampener for the exports and industry can not bail out via exports.

• As a result capacity utilization continues to suffer and has been in the range of 77~78%

and not likely to go beyond 80% in the current year.

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2012-13 2013-14 2014-15 2015-16 P

Capacity 1200 1250 1250 1250

Production 900 940 960 1000

Utilisation 75 75 77 80

Polyester Staple Fiber : Capacity Utilization %

Capacity utilization

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2012-13 2013-14 2014-15 2015-16 P

Capacity 1200 1250 1250 1250

Production 900 940 960 1000

Imports 27 34 75 60

Exports 200 230 250 240

Demand 730 740 780 820

Growth (%) 4.30% 1.00% 5.4% 5.1%

Polyester Staple Fiber : Indian Demand/Supply (KT)

PSF – Demand/Supply Scenario

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PSF Demand

• PSF demand growth in 2014-15 was about 5.4% compared to overall polyester fibre

demand growth of 8%. • This modest growth was a relief when seen in the light of stagnation in demand in the

previous year. However majority of the domestic consumption growth was fulfilled by imports whereas domestic production only grew by 2%.

• 2015-16 is expected to see a growth of 5~5.5% range and would depend on actual

GDP growth as well as cotton crop and petrochemical prices. • Volatility in petrochemical feedstock for PSF industry has been impacting demand for

PSF and may continue to be game changer for PSF demand forecast.

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PSF Supply & Expansion

• PSF production continues to exceed domestic consumption despite one of the smaller players remaining out of production for almost the full year.

• Occasional raw material shortages and raw material price volatility have been only

constraints for the supply side. • While no formal expansion plans have been announced by the existing PSF players,

plans for debottlenecking and revamping of existing capacities are on the cards, which would provide additional volumes in the market.

• A number of new projects for PSF production are being talked about. Volumes and

timing is a ?

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PSF industry’s future

• Indian PSF industry is poised to grow at a 5~6% sustainable level and reach optimal level of operation in 3~4 years from now.

• PSF producers will have to continue developing newer varieties for higher value addition and to meet the challenges posed by other fibres and also by the recycled PSF.

• Irrational capacity expansions and creating capacities ahead of demand curve has seen the sister filament industry continue to reel under pressure of excess capacity overhang.

• New/expansion of capacities in PSF ahead of demand curve could derail the efforts of industry to reach a sustainable level of operations in similar fashion as filament industry.

• There is need for all stakeholders in the Indian Textile industry to help develop downstream knitting/weaving/processing industry to increase consumption of PSF based yarns.

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PSF - Outlook

• Man-Made fibres will have increased share in the total fibre consumption in India and globally.

• Polyester will benefit from this trend, being the largest component of MMF used. Low base of PSF consumption as portion of total polyester used, bodes well for growth in PSF demand.

• Economic revival and improved GDP will lead to increased fibre consumption as there is strong correlation between the two.

• Margins would continue to be under pressure as the industry having multiple issues both with costs and pricing. Volatile feedstock prices and artificially low import prices.

• Future of the industry would depend on the answer to the question: Can we avoid building new capacities ahead of the demand curve and escape the excess capacity overhang of China where PSF utilization rate is 60~65% and Indian filament industry where utilization rate is no better than that.

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CONTACT: Bombay Dyeing & Mfg. Co. Ltd Email: suresh.khurana@bombaydyeing.com Office: +91 (22) 66193060 www.bombaydyeing.com

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