The Dull Textile Economic Situation And What The Industry Can Do

At the very outset, let me wish all the readers of “Textile Excellence” a very happy and prosperous New Year 2023. I wish that demand from USA and Europe increases which has been very limited since last one year. I wish easing out of recession in the coming days and dullness in business to improve towards brightness. May the industry “Sprint & Soar” in the New Year & move towards Boom- Boom from “Gloom & Doom.” Spun yarn exports in general China is once again in focus and again for the same virus and almost at the same time as 2020. Resurgence of Covid-19 in China despite repressive and rigid countermeasures, combined with geopolitical upheavals, a supply shock in the energy markets and synchronized monetary policy tightening by central banks across the world means that the global economy is engulfed in a constant tangle of “polycrisis”. Naturally therefore, exports in general and spun yarns in particular have taken a dip from India. Retailers and brands continue to curtail orders in the first eight months of FY23. As a result, spun yarn exports from India in the period from April, ‘22 to November, ‘22 dropped by whopping 55% from 1184 million kgs to 527 million kgs only. If we continue with this average exports of 66 million kgs per month, it will be the lowest spun yarn exports in last five years from India. Spun yarn exports to China Talking of China, spun yarn exports to China from India reduced from 214 million kgs in the period from April-November, ‘22 to only 14 million kgs, a steep fall of 93%. Average spun yarn monthly exports to China reduced to 1.8 million kgs from 20 million kgs. Share of spun yarn exports from India to China reduced from 14% to only 2.8% echoing the present chaotic situations due to Covid. Now, with the news of china opening up gradually in Janyary,23, the sentiments should improve. Spun yarn exports to Bangladesh Spun yarn exports to Bangladesh reduced from 411 million kgs in the period from April- November, ‘22 to only 169 million kgs on account of challenges of l/c, dollar and energy. Despite these numbers, Bangladesh is still having the biggest share at 32% in spun yarn exports conveying how important this destination is for Indian spun yarn exports. Average of 20 million kgs of exports per month to Bangladesh in FY 23 from 50 million per month in FY22 is putting pressure on Indian spinning mills capacity utilisation. The price expectation for 30 CHC BCI is in the range of US$ 3.10 for L/C sight for Bangladesh. Moreover, L/C crisis, currency crisis, payment delays, energy crisis, poor garment orders are already keeping Bangladesh at an edge. We must remember that export is the most fundamental support, which if grim, pulls down domestic market too. Cotton economy Cotton futures prices have dropped more than 40 cents in just a few months largely due to a slowdown in cotton demand as consumer’s increase spending on non-discretionary items (i.e., food, fuel, housing) due to higher prices. In India too prices of raw unprocessed cotton, also called as kapas, have fallen by 20-25% in the ongoing cotton season from Rs 9,500-10,000 per quintal to Rs 7400-7600 per quintal. Despite droughts, flooding and pest infestations, consumption of 2022/23 cotton is expected to be lower than production by more than 1.2 million tons, at 23 million and 24.2 million tons, respectively. Possibility of increased arrivals of cotton Now with panic situation because of resurgence of corona in China, sentiments of whole value chain starting from farmers to fashion are taking a fresh hit.  Tug of war between farmers and Industry should ease out as everyone in the value chain might turn out to be a seller. As a result, we might see arrivals increasing to 2 lac bales plus per day from present 1.35 lac bales/day.  So far (up to 24th December,22) arrivals are less by about 38% as compared to last season (from 112 lac bales to 70 lac bales) and no one exactly knows if farmers are really hoarding or total crop size is less than being anticipated. Free fall of S-6 & reduced disparities with ICE index. S-6, the benchmark for exports was being quoted at 65,150/candy on 16th December, 22. Ice March future was 81.9 cents/lbs. S-6 was 1836 points plus. But as on 26th December, 22, S-6 is being quoted at Rs 57,000/ candy.  Ice March future is 85 cents/lbs. S-6 is only 30 points plus. So S-6, which was selling at premium compared to competing countries has become cheaper by 18 cents/ lbs. in a matter of 10 days forcing everyone in textile value chain to scratch their heads and say “Ye ho Kya raha hai? (What is this happening?), Itna kyon toota? Samajh nahi aya (This is beyond understanding) & triggering “wait & watch mode” once again. These type of developments and dialogues are indicative of a reactionary market, which is largely influenced by daily news & whatsapp forwards. With worsening economic conditions and concerns of an impending recession, a cotton demand improvement is not likely in the near-term. If ICE index dive towards 70-75 cents per lbs. from present 85 cents/lbs. because of unsupportive macroeconomic factors, then the situations will again become tough.   In that case, we might also see Indian cotton prices softening below 55,000 per candy. It may improve only if ICE moves up. On the other hand, there is a possibility of exporters, CCI & mills also coming in buying of Indian cotton at these prices thereby giving support to cotton by way of increased demand. We might see aggressive selling by Indian spinners for cotton yarn in international markets since their competitiveness improved significantly because of slashing of cotton prices. It remains to be seen as to how buyers reciprocate. Hopefully, demand should emerge for Indian cotton yarn locally as well as globally because of this reduction in disparity between ICE and S-6. In fact, spinners which were planning to cut their capacities about two weeks back, might review their strategy in the back drop of the fast positive developments on cotton prices front. We are also aware that downstream fabric mills and traders have few stocks in hand and any positive news shall help in buying to replenish stock levels. Capacity utilisations so far Many spinners were successful in running much higher capacities in November but since this increase in supply is not in synchronization with the price/demand front, spinners can expect setbacks again. Not only India, but the spinning capacities in Indonesia, Bangladesh, Turkey as well as Vietnam are not running more than 55-60%. Capacity wise, towel capacities are running at 80-90%, denim is operational at 75-80% levels, weavers are operating at 70-75%. The orders in woven segment are mostly for domestic market and mainly in wider width. Fabric manufacturers are not keen to produce any open order in a falling price market, hence the requirements are mostly for immediate dispatches. Capacity utilisation of knitters is only 55-60%. Process houses of Ahmedabad and Ludhiana are running only at 55-60% capacities. Winter retail sales have been a no-show Due to upcoming Christmas holidays, the demand is expected to remain weak till 15th January, 2023. Black Friday sales have been a relatively flop show. There is very low fabric demand in exports and payment cycle in domestic has increased to 90-150 days from earlier 50-60 days. As per reports, garment buyers are already asking for Rs 10-15/meter lower prices for finished fabric for January month in anticipation of lower cotton fibre prices. Due to pressure, per pick prices of air jet looms has come down from 35 paise to 23 paise. Winter season sales have not been encouraging as brands have started offering discounts in December month itself. Summer garments preparation may start by mid of January so the overall picture seems not very encouraging. China Plus One still to benefit India China+1 model has not been fruitful for Indian textile industry so far. Banned Chinese cotton is being converted into yarn and getting supplied from Vietnam to India. As per import data, in October only, 900 MT of cotton yarn has been imported only from Vietnam, mainly open end and carded. Although, at present since Indian yarn & cotton prices have already corrected downwards there might not be more imports but they did damage the chain at the most vulnerable times. FTAs and other positive news not enough The terrible thing about a crisis is that they always happen, the good thing is that they end too. FTAs being signed by India with several countries will certainly give a boost to textile exports but that is something in the long run. Bangladesh, the second largest exporter of clothing after China, has started getting garment orders which they were supposed to get in October. We are also hearing some sporadic news about China too buying combed compact yarns. On the production front, cotton quality of S-6 & Maharashtra is very good. On the exports front for apparels, Indian RMG exports were to the tune of US$ 9.16 billion during April-October 2022-23 as against US$ 8.5 billion during the same period in 2021-22 depicting a growth of 6.7%. We can only wish and hope for better days for the industry in the coming times, but at the end of the day, everything will be driven by international and domestic demand, Indian farmer’s mind-set & Indian Governments’ willingness to balance the interest of farmers and industry. Also, it remains important for Indian yarn spinners to get out of their comfort zone, put the peddle on diversification in their products, don’t follow “Me Too” investment approach, focus on branding as well as look forward to yet untapped destinations to tap the benefits that will surely emerge out of China plus one situation. (Balkrishan Sharma is Joint President & Business Head (Spg) at Ginni Filaments Limited (a 1000 crore company having interests in Yarns, Fabrics, Garments, Non-woven and Consumer products) & is a recognized thought leader in Textile industry. He has 3 decades of experience in diverse domains of textiles like export & domestic marketing, commercials, operations, process control, supply chain management to name a few. He has travelled widely across 28 countries and enjoys PAN India network. In the past, he has worked with Vardhman Textiles Limited, Spentex Uzbekistan and SEL Manufacturing Co Ltd.)

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