Apparel likely to be costlier by 10-15%

Manufacturers take cautious move to deal with high yarn prices, amid threat of a slowdown in demand

Apparel manufacturers and exporters are considering increasing prices of their products by 10-15 per cent in the next few weeks to get partial relief from rising raw material prices. They are, however, worried if this will dampen demand.

Prices of cotton and cotton yarn have increased significantly over the past two months. While cotton prices have gone up by 14 per cent, that of cotton yarn rose a staggering 22 per cent in the past two months alone. With the current rise, the benchmark Shankar 6 variety of cotton is quoted at Rs 10,940 a quintal. The widely-traded cotton yarn of 30’s count is now quoted at Rs 220 a kg, up from Rs 180 a kg two months ago.

Apparel manufacturers waited for two months for proportionate increase in the prices of their finished products amid expectations of a comeback. However, the price continued its upward spiral even in April, which has exporters with little option but to pass a part of the additional raw material burden on to consumers.

“We may have to raise prices of apparel to accommodate rising cotton yarn prices despite fears of hurting demand from both domestic as well as export markets,” said Premal Udani, managing director of Kaytee Corporation.

Manufacturers are currently squeezed between rising raw materials prices and their inability to pass this rise on to consumers. They fear that the demand for apparel products, both from domestic and international markets, would come down, which could hit their profitability, going forward. Domestic players do not want to let the export opportunity go, which came after two years of downward sentiment after the euro zone debt crisis hit global economies.

In Mumbai’s spot yarn market, however, the benchmark variety of 40’s count was quoted steeply higher at Rs 256 a kg on Tuesday.

“Order inflows from the domestic market are also supported by strong demand from China resulting in a continuous spurt in yarn prices,” said Bharat Malkan, a Mumbai-based cotton yarn trader.

China accounts for 30 per cent of India’s cotton yarn exports, while Bangladesh accounts for 16 per cent. On the export front, however, Indian players are facing stiff competition from Asian countries, including China, Bangladesh, Vietnam and Indonesia, in addition to Cambodia due to cheap labour costs in those countries. China imports a substantial amount of cotton yarn from India, as the cost of production in that country is higher, owing to high cotton prices. This led to a rise in demand for yarn from domestic companies.

Despite India being the source of raw materials procurement for the above countries, the manpower-intensive apparel production there is cheaper than in India. Therefore, Indian players fear that raising apparel prices in proportion to the increase in raw material prices would be a costly affair for overseas importers and hence, they may switch their orders to alternative destinations. Meanwhile, India exported 758 million kg of cotton yarn during the April-December 2012 period, 20 per cent higher than in the corresponding period a year ago, according to a senior official with the textile commissioner’s office. The Cotton Yarn Advisory Board under the Ministry of Textiles has pegged cotton yarn exports to set a new record this year at 1,000 million kg.

Meanwhile, the Apparel Export Promotion Council (AEPC) has also raised the issue with the government and has asked for a ban on cotton yarn exports and only allow exports of 60’s count yarn and above. Else, consider the facility of duty drawback on the exports of cotton yarn be stopped forthwith. AEPC has also suggested that cotton yarn, like cotton, should be permitted to be imported duty-free, so that the prices of basic raw materials for the manufacturing of garments remains stabilised.