Arvind sees glut in denim market in two years

Arvind Ltd, world’s largest denim producer, sees a glut in the Indian denim market in the next two years by when the present domestic capacity would rise 22% to 900 million metres from 700 million metres now.

“At present, of the total installed capacity of 700 million metres, around 400 million metres is consumed in the domestic market while rest is exported. For a couple of years, we are expecting up to 15% growth per annum in demand for denim,” Aamir Akhtar, CEO of Denim Fabrics, Arvind.

Globally, denim demand is around 5 billion metres, which is rising 4% annually.

“We are not expecting any major growth in exports, too. Domestic and exports growth together may not exceed the additional capacity of 200 million metres coming up in the next two years. Hence, the supply will exceed demand and so mills may discontinue 100% capacity utilisation,” said Akhtar.

Arvind has denim fabric production annual capacity of 120 million metres in India. “With an investment of $75 million, we are also adding 30 million metres by setting up a new plant in Bangladesh. The first phase of this plant, with 10 million metres capacity, will be operational by January 2012.

The second phase is expected to be operational in another two years,” he said, adding that every 10 million metres capacity costs $25 million.

About 60% of Arvind’s domestic production is exported and the rest 40% is supplied in the domestic market. “The new plant in Bangladesh will not export directly. But we will supply 100% of the produce to our international clients who already have presence in Bangladesh. Indirectly it will be exported. Even of the present 60% exports from India, much is supplied to clients in Bangladesh,” he said.

Though the cotton prices have shot up drastically in last one year, Akhtar said, the company’s margins have not been affected.

“We are expecting a correction in the cotton prices, which has already started in last two days. With good monsoon, better production is expected and so the cotton prices are expected to remain stable,” he said.

He also said that Arvind does not hedge against rising cotton prices. “The mechanism of hedging in India is not robust. So we are away from it,” he said.

Akhtar said in last 15 years the weight of denim has reduced.

“With intense research, we have seen a few noticeable trends in denim. The biggest surprise was stretch denim. Apart from that, 15 years back the average weight of denim was around 12.5 ounce per square yard. At present, this has reduced to around 10 ounce per square yard,” he said.

About 15 years back, the cost of denim fabric was around $2.76 per metre. “The cost fell to around $1.67 per metre three years back. It has shot up to around $4 per metre now due to inflation,” he said.