The future of the textile value chain as the price of cotton explodes

0

NAYAN DAVE & SAJAN C KUMAR

With cotton prices topping the Rs 100,000 per candy mark, the entire textile value chain is in the grip of a grim financial crisis, compounded by dismal export demand and production cuts at all levels. Not only small units, but even bigger players are feeling the heat from the rising cost of important raw materials. Even the government’s decision to abolish import duties on cotton did not provide much-needed respite for the struggling textile industry, the second biggest job generator after the agricultural sector.

“Textile companies are bleeding because of the sharp rise in cotton prices. There is cut production everywhere. They struggle to match retail tariffs proportionally to high cotton prices. We want the government to intervene to curb the relentless bullish trend in cotton,” says Chintan Thaker, Chairman of Welspun Group. Thaker said large companies like Welspun have no choice but to continue production operations to meet long-term orders from their international customers. Welspun’s textile units in Gujarat are operating at 60% capacity. “If the current situation prevails for a longer period, there will be further production cuts,” Thaker warned.

“Around 25 denim manufacturers in Gujarat have cut production, ranging from 25% to 50%,” says Ashish Shah, managing director of Ahmedabad-based Aarvee Denims and Exports. Most denim producers suffer losses because it is not possible to balance the prices of cotton and other raw materials with the finished products, Shah explains. Aarvee Denims is also experiencing a 50% reduction in production.

Spinning units are the main victims of inflated cotton prices, says Gautam Dhamsania, secretary of Gujarat Spinners Association (SAG). “The supply of cotton to the mills has decreased by 50% in the last month. The export demand for cotton yarn is low,” he reveals. The others have reduced their production and working hours, he lamented. Saurin Parikh, president of SAG, attributes the current unrealistic cotton prices to future trading on commodity exchanges, coupled with the accumulation of stocks in large quantities by a handful of multinational corporations. He proposes that the government impose a stock limit on cotton to curb rising prices.

“A large amount of gray fabric comes from Tamil Nadu to Gujarat to be processed. With weavers in Tamil Nadu having cut production by 50% due to rising cotton yarn prices, processors in Gujarat are not getting new processing orders from the southern state,” says Naresh Sharma, Chairman of the Ahmedabad Textile Processors’ Association.

Apart from knitted cotton yarns, the demand for polyester and viscose knitted yarns also from Tamil Nadu has been declining for the past fortnight, says Dev Kishan Mangani, former chairman of Surat Textile Traders Association (STTA). The Tirupur cluster mainly sources knitting yarns from Surat and Ludhiana.

Rising cotton and cotton yarn prices have hit Tirupur’s garment export cluster hard. Knitwear exporters feel they would find things difficult if the problem was not resolved immediately. They are awaiting the outcome of Union Trade Minister Piyush Goyal’s proposed meeting with textile stakeholders scheduled for next Tuesday. Asia’s largest knitwear cluster is observing a two-day strike from Monday to protest high yarn prices over a year-long period.
“It would be a peaceful strike. There will be no dharna or protest march. All cluster units will remain closed for two days. Our aim is to attract the attention of the authorities and seek a solution to the current situation,” said Raja M Shanmugham, Chairman of the Tirupur Exporters Association (TEA).

The TEA has also requested the help of all major banks to overcome the financial crisis faced by exporters of knitwear, mostly small units, which are under the weight of unprecedented yarn prices. He asked the banks to hold the exporters and provide sufficient financial assistance. The TEA has also sought to inject new sources of liquidity such as the ECLGS. He wants MSMEs to be allowed to benefit from additional credit facilities of 10-20% of the existing limit.

Market watchers believe the severity of the impact on the value-added knitwear sector will have a cascading effect on every stage of manufacturing, threatening the livelihoods of thousands of workers employed in these units, said the TEA. Apart from rising yarn prices, knitwear exporting units are also facing rising transportation costs due to the Russian-Ukrainian war.

Knitwear exporters may not be able to fulfill more than 40% of their export orders under current situations, Shanmugham fears. “Exporters based in Tirupur are in the process of preparing the first summer order for the export market and the second summer order is expected at the end of May. We doubt that we will be able to deliver these orders and therefore , the TEA has approached the wire suppliers to reverse the price hike,” he states grimly.

Share.

About Author

Comments are closed.