Mumbai: India’s garment exporters are scouting for new destinations in the wake of tepid demand in the traditional US and European markets.
Indian garment manufacturers were walking a tightrope for some months due to escalating cotton yarn prices coupled with slowdown in the US and European economies.
The fall in cotton prices, from Rs 62,000 a candy (356kg) to Rs 34,000 a candy, provided some relief to garment units. But, prospects of increase in the business are bleak as consumers in the developed countries have decreased their demand.
According to Apparel Exports Promotion Council (AEPC) Chairman, Premal Udani, “Next four to six months are crucial and we are evaluating the trade prospects in Japan, Russia and South America. After signing a free trade agreement with Japan, Indian players may get a better access to buyers there. The existing suppliers from China may be a threat but we hope to replace them.”
Recently, Standard & Poor’s downgraded US rating to AA+ from AAA on the back of economic uncertainties. Europe debt crisis has also hit the textile sector.
The spring to summer demand, which is usually expected around this time, has already started to see a decline. Usually, the orders start to come in by now and exporters have already noticed a fall. “We have been seeing a slowdown in demand since the last two months. The market is also nervous,” Udani added.
“Quoting numbers at this point is not possible, but a slowdown in demand for the spring-summer collection is seen,” said Rahul Mehta, president of the Clothing Manufacturers Association of India.
Market players believe the prices of cotton and cotton yarn have fallen owing to weak demand from the industry. The price of cotton, after hitting an all-time high in February, crashed and is at Rs 37,000 a candy now. Cotton yarn prices have also fallen from its all-time high of Rs 290 a kg to Rs 160-170 a kg.
“The delay has more to do with the Indian factors (such as price volatility), as importers were giving orders in small quantities,” said Ashok G Rajani, Chairman Export Promotion Committee, AEPC.
Currently, the sentiment in the industry is at its lowest and it may get better. But some damage has been done till things improve.
“Realisation of exporters may be hit, but not volumes,” said Pulkit Agarwal, Manager at Care Ratings.
Garment exporters from Tirupur, who were already in doldrums due to closure of dyeing units, are suffering losses to the tune of Rs 1,200 crore in the first quarter of this year.
According to the Tirupur Exporters Association President A Shaktivel, “Most exporters are dependent on the US and Europe, but some are testing waters in South America.” He said the fall in the cotton yarn price has been offset by the increase in the dying cost for the Tirupur-based units.
“The dyeing cost earlier was Rs 60-70 a kg and has now been revised to Rs 150 a kg as the yarn is sent to the north for dying”.
Exporters are also opting for the forward booking cover for the dollar and the euro.
Most of the exporters based in Ludhiana registered a drop of 10-15 per cent in their volumes due to unviable prices.
An official from Nahar Group said despite a correction in yarn prices, they may not register an increment in business, as the demand is likely to remain low.
Exporters were also hit by withdrawal of Market Linked Focused Product Scheme, under which two per cent incentive was given to EU and US exporters, interest subvention by banks and revision in the rate of interset from 7-7.5 per cent to 11-11.5 per cent per annum.