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Orders Revive but Raw Material Prices Pose New Challenges

Raw Material Price Hike

After a long haul apparel exporters and domestic garment manufacturers in India are seeing a big jump in orders and most of them are reporting robust growth in business.

However, the sourcing and buying of raw material has become a huge challenge in the past few months which has happened mainly due to sudden increase in demand and shortage of cotton yarn in the market.

With the onset of demand for both international and domestic market the scarcity and fluctuation in price of yarn, fabric and accessories is being felt by almost everyone.

The situation is so alarming that companies who finally want to cash on the lost business due to the pandemic are finding very difficult to manage pricing with fluctuation’s happening almost every day.

Sanjay Kumar Verma, CEO, Rajlakshmi Cotton Mills Pvt. Ltd.
Sanjay Kumar Verma, CEO, Rajlakshmi Cotton Mills Pvt. Ltd.

“Yarn and fabric prices are changing on a daily basis because of which the costing is getting affected and we have to put more investments in raw material. Order inflow is high mainly because the pandemic led to close down of many sweaters factories in Delhi, NCR and secondly because there is an upsurge in demand from everywhere so there is a shortage of raw material also. We are booked till Feb/March but the inflation in raw material price is a big challenge that we are facing,” said Sanjay Kumar Verma, Rajlakshmi Cotton Mills Pvt. Ltd., a company that has manufacturing facilities in Noida.

After battling high cotton prices for more than a year, apparel makers plan to increase the prices of their products.

Labels such as Indian Terrain and Raymond UCO Denim will likely become more expensive once the increases take effect. Innerwear brand Enamor has already increased prices.

Apparel makers have been reluctant to pass on the higher cost to consumers so far because of sluggish demand on account of the COVID-19 pandemic.

But with the revival of consumer demand led by festive sales, a price hike in clothing products is on the cards now.

During the cotton year August 2020-July 2021, while global cotton production declined by 7.4% year-on-year to 24.4 million tonnes, consumption increased by 16.4 percent to around 26 million tonnes, according to the United States Department of Agriculture (USDA)

Indian cotton prices have averaged about 24 % higher in the 12-month period that ended September 2021.

In the past three months, prices have remained about 50-60 % high Cotton prices have been climbing for more than a year now on account of supply-chain logjams, sanction by the West on China’s textile hub, Xinjiang, and power shortages in China.

Prices of the S-6 variety of cotton in India averaged Rs.135 per kg during the October 2020-August 2021 period.

High exports of cotton from India also led to cotton prices rising domestically.

Sanctions by the West against Xinjiang have had an impact on the Indian apparel and textile industry as well.

While domestic apparel makers are struggling to source cotton and battling higher prices, companies operating in the export market have rushed to plug the supply shortage.

Suppliers are getting better prices in the export market and hence, they are exporting most of the stock, creating a shortage in the domestic market.

Experts believe that the cotton prices are going to surge further in the months ahead because of a decline in stocks, largely in India, Brazil, and Turkey, leading to an increase in the demand-supply gap.

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