Denim fabric prices on downward trail, margins to be hit

With cotton becoming cheaper, prices have dipped 10% in domestic market in last two months.

Denim fabric prices have started falling and may do so further, following a crash in cotton prices. Benchmark prices, earlier around Rs 140 a metre, have eased to Rs 120 a metre. Another 10 per cent decline is expected, as cotton yarn prices have crashed in the past two months.

“In the past two months, we have brought down the prices of denim fabric by 10 per cent in the domestic market, as prices of cotton have eased,” said Aamir Akhtar, chief executive officer, denim fabrics, of Arvind Mills.

“We have already cut denim fabric prices by five per cent and will cut by another 10 per cent. Export demand is not strong, but is not bad as well, while domestic demand is not an issue,” said Utsav Pandvar, chief financial officer, Aarvee Denims.

KG Denims said as both cotton and yarn prices had fallen, there was no option but to bring down the price of the fabric as well. Arvind has a 24 per cent share of the denim market, Aarvee has 12 per cent and KG, five per cent.

Cotton prices for the benchmark Shankar-6 variety had peaked at an all-time high of Rs 63,000 a candy (356 kg) in February and are now Rs 31,000 per candy, a level seen a little over a year before. Cotton yarn prices for the 40s combed variety have followed the trend and eased to Rs 165 per kg from Rs 275 per kg in February. A slowing in retail demand for apparel has also had its impact on the denim market.

As the inventory was procured at higher levels, it will dent the margins of companies, as fabric producers cannot avoid bringing down the price. New procurement of cotton, which could be at lower prices, will take time. The new crop will come a few months later.

Cotton prices had crashed in April and May but producers of the fabric refused to bring down the price, as export demand was strong.