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Denim 'blues' for makers

Oct '05
Denim has been hit badly due to a 10 to 15% fall in global prices. This could be bad news for leading manufacturers, such as Arvind Mills, Aarvee Denim and Raymond, which may come under pressure after experiencing a robust growth in the past one year.

A combination of factors like over-capacity, price negotiations by foreign buyers and demand and supply mismatch, is said to be the major cause behind the development.

According to garment exporters, overseas buyers such as WalMart, Gap and JC Penney are negotiating for lower prices, thereby, squeezing margins. “We have resorted to either sourcing cheaper fabrics or refusing orders,” an exporter said.

The falling demand is expected to force leading Indian denim manufacturers to reduce production. Recently, all major denim manufacturers had enhanced their denim production capacity, in anticipation of a better future in the post-quota regime.

“In the near future, we expect to see the denim segment come under pressure, both in terms of volume off-take and prices. We believe Arvind (60% of its sales is denim) and Raymond (15% of its sales is denim) remain vulnerable, although the impact is likely to be mitigated by prevailing low cotton prices,” CLSA Asia said in one of its reports.

Some people, however, believe that it is a short term phenomenon. “Denim prices are expected to ease over the next six months when the demand and supply mismatch is addressed,” one of the top manufacturers told ET.

Encouraged by dismantling of textile quotas, textile companies are in a major expansion mode. Raymond, has already identified denim as one of its focus areas with a plan to enhance denim production capacity from 30 million meters per annum to 40 million meters.

Aarvee, on the other hand is working on an ambition plan to increase its production capacity from over 40 million metres to over 70 million metres by 2006. Arvind, meanwhile, already has enough denim capacity.

Times Of India

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