Indian polyester yarn makers are witnessing drop in their margins by about 10-15 percent due to rise in raw material prices by Rs.10-15 a kg in the domestic market. In the domestic market, polyester yarn raw materials prices stand at Rs 115-120 a kg, against Rs 100 a kg three months ago. Prices in the international market stand at Rs 110 a kg.

Purified terephthalic acid (PTA) and mono-ethylene glycol (MEG), two key raw materials used to make synthetic yarn. There are very few manufacturers and suppliers of polyester raw materials PTA and MEG. Yarn makers mostly have to dependent on domestic raw materials. But with prices rising steadily through the past three months, they are being forced to import.

Paritosh Aggarwal, managing director of Suryalakshmi Cotton Mills, which manufactures polyester yarn, cotton yarn and denim, among others stated that their margins have been reduced by 10 percent in the past few weeks. Moreover, Yarn makers have been impacted due to multiple reasons, including reduced exports to and increased imports from China.

According to K Selvaraju, secretary-general of the Southern India Mills' Association, the spinning mills have seen about 10-15 percent drop in their margins as raw material prices, especially in the domestic market, are on rise. Most of the mills are dependent on the domestic market. Also, demand for yarn has been slow and this is putting further pressure on mills' bottom lines.

PTA and MEG are derivatives of crude oil and according to Platts, US-based research agency in the past two months, its petrochemical index has risen 6%. Prices in the $3-trillion-plus global petrochemicals market rose for a second consecutive month, increasing 4 percent in July to $1,446 a tonne, following a 2 percent rise in June.

On an annual basis, petrochemical prices rose 10% in July. The prices of crude oil and naphtha (a feedstock for petrochemicals) dropped by 5% and 2%, respectively.

But in global market the prices of PTA and MEG have remained low.