The impact of rupee depreciation and higher petroleum prices is now being felt by the textile industry, as fabric and apparel makers remain hesitant to pass on higher costs to the final consumers on concerns over weak demand, raising questions on how the industry will cope with this challenge. While the prices of petro-based raw materials such as PTA and MEG have gone up by close to 44% in the past three years, the rise in fibre, yarn and textile prices has remained between 12% and 35%, according to industry sources, creating margin pressures.
Prices have been going up steadily over the past few years, but not enough, argue upstream players facing the direct brunt of rising petroleum prices and a weak local currency. “The segments across industry have witnessed substantial increase in other cost elements like the conversion cost,” said an industry veteran from a company in the upstream segment, asking not to be named. “However, the industry has been able to pass on only a part of the increased operating costs, which has resulted in squeezed margins,” he said. According to this official, the industry’s energy cost has almost doubled — fuel prices have increased by around 40%, packaging cost by almost 30% and labour cost has also gone up steeply in the past couple of years.
The sudden spike in raw material costs has rocked the boat for downstream players, who have managed to pass on the gradual increase in cost earlier. “Consumers have just about returned to the market after the removal of excise duty, which reduced prices by between 8% and 10%. We would not like to jeopardise this sentiment by again increasing garment prices,” said Rahul Mehta, president — clothing, Manufacturers Association of India (CMAI). According to him, a rising number of consumers are buying their requirements during the end-of-season discount sale, and it would be too risky to increase prices at this stage. Yet, a few are ready to accept the ground realities, notwithstanding the obvious risks, on expectation of an improved demand in the upcoming festive and marriage season.
“Costs are rising and margins are getting squeezed. Ultimately, the industry will have to go for price hikes,” said Srinarain Aggarwal, managing director of Surat-based Prafful Sarees. “It may affect demand, but otherwise, the survival of the entire industry will get impacted.” According to him, the fabric processing units around Surat region are demanding a 15-20% price hike in their dyeing and printing operations with immediate effect for grey fabric traders, but are unable to secure it due to a drop in volumes.
“Although cotton yarn prices have gone up 30% in the past few months, we are able to weather this by increasing our fabric prices by 20-30%,” said Mitesh Shah, CFO of Mandhana Industries. Raw cotton prices moved up nearly 15% to . 46,000 per candy in the last six months.
Prices have been going up steadily over the past few years, but not enough, argue upstream players facing the direct brunt of rising petroleum prices and a weak local currency. “The segments across industry have witnessed substantial increase in other cost elements like the conversion cost,” said an industry veteran from a company in the upstream segment, asking not to be named. “However, the industry has been able to pass on only a part of the increased operating costs, which has resulted in squeezed margins,” he said. According to this official, the industry’s energy cost has almost doubled — fuel prices have increased by around 40%, packaging cost by almost 30% and labour cost has also gone up steeply in the past couple of years.
The sudden spike in raw material costs has rocked the boat for downstream players, who have managed to pass on the gradual increase in cost earlier. “Consumers have just about returned to the market after the removal of excise duty, which reduced prices by between 8% and 10%. We would not like to jeopardise this sentiment by again increasing garment prices,” said Rahul Mehta, president — clothing, Manufacturers Association of India (CMAI). According to him, a rising number of consumers are buying their requirements during the end-of-season discount sale, and it would be too risky to increase prices at this stage. Yet, a few are ready to accept the ground realities, notwithstanding the obvious risks, on expectation of an improved demand in the upcoming festive and marriage season.
“Costs are rising and margins are getting squeezed. Ultimately, the industry will have to go for price hikes,” said Srinarain Aggarwal, managing director of Surat-based Prafful Sarees. “It may affect demand, but otherwise, the survival of the entire industry will get impacted.” According to him, the fabric processing units around Surat region are demanding a 15-20% price hike in their dyeing and printing operations with immediate effect for grey fabric traders, but are unable to secure it due to a drop in volumes.
“Although cotton yarn prices have gone up 30% in the past few months, we are able to weather this by increasing our fabric prices by 20-30%,” said Mitesh Shah, CFO of Mandhana Industries. Raw cotton prices moved up nearly 15% to . 46,000 per candy in the last six months.
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