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India : Firm cotton may force textile makers to raise prices again (October 22, 10)

India : Firm cotton may force textile makers to raise prices again

Denim and other textile manufacturers are expecting another round of rise in fabric prices with the recent 10-15 per cent rise in cotton prices this September.

According to industry players, the recent rise in cotton prices is putting pressure on margins. For instance, Arvind Ltd raised its denim and shirting prices by 15 per cent last month, but feels that another upward revision is needed.

“Prices of almost all raw materials have gone up. There is a possibility that denim and textile apparels may see another round of price hike if the situation continues or worsens. As far as Arvind is concerned, we hiked prices by 15 per cent in September and will not hike further as of now,” said Jayesh Shah, chief financial officer of Arvind Limited, whose denim fabric is now priced at Rs 130 per metre and shirting at Rs 150 per metre.

Rajiv Dayal, chief executive officer, Mafatlal Denim, said the company is contemplating another round of price rise. “While a round of price hike in denim fabric did take place in September by 10-15 per cent, including Mafatlal Denim, there has been a shortage of cotton as well as a low stock to use ratio. Further, the margins have been squeezed with the recent rise in cotton prices. Hence, there may be another round of price hike by fabric manufacturers.”

Cotton prices firmed up substantially during the cotton year 2009-10 (October-September). Sample this, price of the benchmark cotton variety, Sankar-6, is currently ruling at Rs 40,200 per candy (one candy= 356 kg). At the opening of the 2009-10 season the price of this variant of cotton was around Rs 22,500 per candy but shot up to Rs 35,000 per candy by the end of the season. Similarly, the 2010-11 season starting October saw the opening price of cotton at Rs 35,000 per candy and subsequently firmed up to a record Rs 42,200 per candy.

“On the back of firm cotton prices, cotton yarn prices, too, jumped by around 45-50 per cent during 2009-10. Four months back, when cotton prices were hovering around Rs 30,000 per candy, the yarn prices had surged by 30-35 per cent. However, recent rally in cotton prices resulted into a rise of 15-20 per cent taking the total increase to 45-50 per cent,” said Bharat Malkan of Mumbai-based IB Yarn Agency.

However, Mafatlal Denim believes the rise in fabric prices may not be passed on to retail apparel very soon. “Brands will have to increase the prices to compensate the fabric price rise. But the timing and quality of price rise will depend from brand to brand. Moreover, the percentage of increase in retail will not be as sharp as the fabric price rise,” said Dayal.

While consumers might not experience the impact of the rise in cotton prices this Diwali, fabric manufacturers are playing the wait-and-watch game before raising their prices.

With stocks already in place, Arvind Brands and Retail said the festival shopping season may not see any price hike in retail apparels.

“Since orders have already been booked for retail for the current festival season, we are not in a position to tamper with the prices. But if the raw material price scenario continues to remain high or rises further, we may have to go for a 5-8 per cent price hike in retail for the order season of February-March,” said J Suresh, chief executive officer of Arvind Brands and Retail.


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