|
| Garment companies pass on cost increase |
| Dilip Kumar Jha / Mumbai Dec 16, 2010, 00:50 IST |
|
Due to rising raw material prices, readymade garment manufacturers have raised the prices of various textile products thrice, by Rs 20-50 each time, in the past two months.
Various high-end textile products, thus, have become costlier by Rs 100-150, while the mid-end and low-end products have become costlier by Rs 50 and above since October. Hosiery product, too, are now quoted higher by Rs 20-30 per piece.
Despite this, textile manufacturers’ operating margin is likely to remain vulnerable during the rest of the current financial year. According to a Fitch Ratings report, the continued sharp rise in cotton prices globally are likely to hurt the operating margins of Indian textile manufacturers, as prices percolate down the value chain, and are ultimately reflected in high prices of textile and clothing products.
Cotton prices have risen unusually since August, and at end-November, were between Rs 108-118 per kg (up 60-70 per cent y-o-y) across common varieties of cotton. The benchmark Shankar-6 variety in Mumbai softened to trade on Tuesday at Rs 11,192 per quintal after hitting a high of Rs 12,500 per quintal late last month, a 34 per cent rise from Rs 8,380 per quintal in early August. Yarn prices have moved likewise, witnessing an increase of 15-20 per cent in the same period. Fabric prices have also gone up, although end-product prices have not increased proportionately, Fitch observes.
Input pressure
Cotton prices are expected to remain firm in the current season, of October 2010-September 2011, well above the previous one, due to the huge international demand-supply gap, and untimely rain in major Indian cotton producing states. The picture should be clearer after arrivals over December 2010-January 2011, the peak period for these.
As a consequence, garment manufacturers are likely to also raise end-product prices further. However, in the already committed fixed-price contracts, garment exporters would have to suffer on account of rising input prices as well as the appreciating rupee.
To soften cotton and yarn prices and ensure adequate availability of yarn in the domestic market, the government has capped yarn exports for the current cotton year to a maximum of 720 million kg, to be shipped by mid-January. Last year, India’s total yarn exports were recorded at 589 million kg.
This initiative is intended to aid the garment industry by reducing input prices. However, yarn spinners will suffer, as their selling prices are likely to fall. Yarn exporters also fear losing customers to their global counterparts.
In light of the sharp rise of cotton prices, smaller cotton spinning mills face the threat of shut-down if they are unable to buy and stock cotton in the ongoing cotton-buying period of October-February). There will be pressure on profitability across the value chain, given the trickle-down effect of mounting input prices. However, this could be mitigated by a diversification into synthetic and other natural fibres.
|
|
|
|
|
|
|
|
|
|
 Read Business news in |  |
|
|
|
|
|
|
Advertisements |
|
|
|
|
|
|
|
|
|
|
Content Guide
