While cotton prices may have been stabilising in recent times, it is the indigo dye that has been pinching denim makers' pockets. With the industry having to import almost 100 per cent of the raw material from China, input costs for indigo dye has risen by 25-30 per cent in last one month, forcing denim makers to pass it on to consumers.
Firstly, the government had removed exemption on additional duty on import of the dye in the recent budget. Add to that, in last one month rupee depreciation has also led to indigo's import prices rising by overall 25-30 per cent for denim fabric makers. Almost 99 per cent of indigo dye used by the industry is imported in synthetic form while a meager one per cent of natural dye is developed in India. Bulk of the synthetic indigo dye, either in powder, liquid or granule forms, are imported from China, said PR Roy, senior textile consultant, followed by little amounts from Europe and the US.
For textile conglomerate and denim major Arvind Ltd. indigo costs have been increasing by 10-12 per cent in last one month, according to Aamir Akhtar, chief executive officer - lifestyle fabrics (denim). "Thankfully, we could pass it on to our consumers in the form of a $3.8-4 per metre price hike," added Akhtar.
On an average the industry imports indigo dye to the tune of 7000 tonnes or over Rs 2000 crore ($42 million) per annum wherein one tonne of indigo dye is required for manufacturing 100,000 metres of denim fabric, as per YC Gupta, chief executive officer, LNJ Denim and secretary-cum-treasurer for Denim Mills Association.
"While government removed exemption on additional import duty, the rupee depreciation also added further woes as far as indigo dye is concerned. In all, it has resulted in 25-30 per cent rise in indigo import prices. Since it is highly infectious and polluting industry, the government should instead encourage imports by exempting duties. In last one month, as against a $5.60 per kg import price of indigo dye, the industry is paying around $7.06 per kg. Nevertheless, we are trying to pass it on to consumers," Gupta added.
The only respite has been stabilised prices of other inputs like cotton and spandex. "Reduction in cotton prices have somewhat compensated the increase in indigo costs for us," said Utsav Pandwar, financial controller at Aarvee Denims & Exports Ltd, agreeing that the company was able to pass the burden to consumers with a rise in denim fabric prices.
Similarly, spandex, which adds stretchability to denim fabric has also seen a slight dip in its price followed by increased demand by denim makers.
"We have seen significant increase in demand of stretch denim garments in the Indian domestic market in the last 6 months. We believe export of stretch garments/fabrics from India has also increased significantly in last 3-4 months," said Andrew Evans, managing director of INVISTA Sales and Service India Pvt. Ltd. which supplies the Lycra brand of spandex.
Moreover, on a very nominal basis, other colours are also now making their way into denim making such as sulphur colours of red, green, blue, pink and yellow which are used in non-jeans products.
"Yet, denim makers cannot do away with indigo dye and will eventually have bear the price rise or pass it on," said Rajiv Dayal, managing director.