Apparel exporters were hit hard by recession. Now, rise in the price of cotton, and a resulting increase in the fabric prices are driving nails into their coffin.

 

The stinging pangs of recession have already hurt the textile exporters forcing them for retrenchments and layoffs. They were in for more surprises when rupee value started appreciating. Latest addition to this list is the spike in cotton prices, and a resulting increase in the fabric prices. Cotton prices have soared up to 15% in a year. Price of 360kg of cotton candy costs Rs.24, 500, and manufacturers believe that this s the steepest price, ever.

 

During the recent past commodity prices have gone up, and cotton is not a commodity with unmixed blessing. Price of cotton has gone up in the recent past as international contractors were booking commodity for imports. Increase in the price of cotton had led to a subsequent increase in the rise of fabric costs. This has come up to 42% in the past one month.

 

Yarn constitutes 30-40% of the cost for a single garment, and apparel making is the expensive part of production. In the apparel industry, cost of the fabric constitutes 60% of its garment price. They make 50-60% of the export values. With the increase in the price of cotton, and decline in the price of yarn, apparel manufacturers are having a tough time.

 

Garment exports experienced a decline by 7.32% during the period of April to September. It met with a sharp fall in exports from $5.22 million during the same period in the previous year to $4.84 billion. Increase in the price of fabric has forced many exporters to opt for a cut in production.

 

Does the situation favor China?

 

Fabrics such as polyester knit fabric, and other blended fabrics are available in China for a less expensive price.Sourcing options are from China is available for the importers for 5-10% less cost comparatively over India. Though all Indian fabrics cannot be substituted, still there is a possibility that importers might look at China as an option. For the Indian exporters who are holding orders, negotiating prices for the new orders likely to be executed in the coming months will become intricate. Rising value of rupee has also led the importers to think about importing from China, thereby saving their input costs.

 

Due to global turmoil, and declining trend of retail sales in the importing countries, apparel exporters are already running their business in losses. Rising prices of cotton with a consequent increase in the fabric costs and a consequent increase in fabric costs is taking a heavy toll on the garment exports, affecting the already wafer thin profit margins. An export industry providing job opportunities for 3.5 million workers directly and 3 million people indirectly serving as the sixth largest exporter in the global perspective is currently going through a rough patch.

 

References:

 

1. http://economictimes.indiatimes.com
2. http://www.livemint.com