Cotton crop fall may hit textile firms

Apparel prices are unlikely to rise despite an expected fall in cotton production in the country as slackened demand has crimped the pricing power of manufacturers. While the Union textile ministry’s Cotton Advisory Board has estimated production in the 2011-12 season to touch 35 million bales, experts see it averaging 34 million due to deficient rainfall in main producing states of Gujarat and Maharashtra.

Industry experts said while cut in production increases cotton prices and, in turn, garment prices by 3-4% and apparel prices by 10-15%.

But this time, they may not head north as economic slowdown has significantly impacted buying, evident from low business despite extended sale season across categories.

Industry insiders said the maximum retail price (MRP) of apparels would remain stable because retailers are unwilling to do anything that will keep consumers away from the stores.
They said the slowdown has impacted sale of apparel, which is mostly impulse buying, and not necessity like food.

“Sale of apparel is growing by just 5-6%, compared to the usual double-digit growth,” said Prashant Agarwal, joint MD, Wazir Advisors.Secondly, as a reaction to the 10% excise duty on branded apparel imposed in the 2011 Budget, retailers had last year hiked prices by 25-30%.

“So now despite prices of garments rising by 3-4%, retailers would not want to pass it on to consumers. They will absorb it and look at other means to increase sales,” said Agarwal, adding that unless garment prices rise by 10-12%, apparel retailers, who source garments from mills and textile firms, will not hike prices.
J Suresh, MD and CEO, Arvind Lifestyle Brands and Arvind Retail, said, “There would be no change in pricing.”

Echoing the sentiments on apparel pricing, Shaju Mangalam, secretary, Confederation of Indian Textile Industry, said, “We do not think there would be any steep rise or fall in apparel prices.”
Cotton is the main input in the textile and apparel segment, which is pegged at $58 billion and slated to reach $141 billion by 2021, as per estimates by Technopak.

Industry experts have predicted cotton production in the 2012-13 season to drop around 7% compared to the current year levels. Cotton season in India runs from October-September. Prices of domestically produced cotton is about `36,000-36,500 per candy (1 candy = 356 kilogram).

Experts said though prices of cotton produced in Africa, Australia is are usually 10% lower than the domestic prices, mills which have traditionally been sourcing cotton domestically will find it tough to make a switchover to international cotton due to the extended time needed for placing orders and getting shipments.

Mangalam said most mills use locally produced cotton and resort to marginal imports. Internationally, cotton prices plunged 65% from last year’s peak of $2.197 a pound on account of excess harvests, as per estimates by the US Department of Agriculture.
In a July conference call with analysts, Blake Jorgensen, a former CFO of Levi Strauss, said the company expects lower cotton costs in the third and fourth quarters. The company had cut prices in the second quarter to reduce inventories.