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.
“We have taken a double-digit price increase in the last one year given the abnormal increase in the prices of cotton and yarn,” said Shekhar Tewari, CEO of Enamor, which was acquired by private equity firm Advent International in 2019. Advent also has a controlling stake in men’s innerwear brand Dixcy Textiles.
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.
“So far we have been able to contain the prices by judiciously procuring cotton and yarn ourselves and our stocks for the next three-four months have already been produced,” said Vidyuth Rajagopal, managing director, Indian Terrain. “But if the prices do not cool down in the next six months and it becomes unbearable for us, we might look at hiking prices.”
Denim manufacturer Raymond UCO Denim, which supplies denim to international and national brands, is pushing now for a price hike.
“Brands were reluctant to hike prices until recently due to the drop in consumer demand. But we are now asking brands, international as well as domestic, to increase prices and they might pass it on to the end-consumer in the months ahead,” said Arvind Mathur, CEO, Raymond UCO Denim.
Denim has a large cotton component, which could be as high as 50 percent in value terms. Other clothing products such as T-shirts also have 40-50 percent cotton and innerwear has 10-20 percent.
Sky-high prices
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.
“Tight global supplies amid high demand and consumption in the international market have fuelled the price rise,” said Bhagyashree Bhati, assistant director of industry research at CARE Ratings.
During the cotton year August 2020-July 2021, while global cotton production declined by 7.4 percent year-on-year to 24.4 million tonnes, consumption increased by 16.4 percent to around 26 million tonne, according to the United States Department of Agriculture (USDA).
The price of cotton in India has moved in tandem with global prices.
“Indian cotton prices have averaged about 24 percent higher in the 12-month period ended September 2021, vis-a-vis the 12-month period ended September 2020.
In the past three months, prices have remained about 50-60 percent higher year-on-year,” said Nidhi Marwaha, vice president and sector head, of corporate sector ratings at ICRA.
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.
Cotton exports
Sanctions by the West against Xinjiang have had an impact on the 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,” said Tewari of Enamor.
According to Hetal Gandhi,director of CRISIL Research, as Indian cotton is available at lower prices than international cotton prices, any increase in the international prices drives demand for Indian cotton.
“During FY21 (April 2020 – March 2021), exports of cotton yarn grew by 5.5 percent to 1,011 thousand tonnes (around 1 million tonnes), and the shipments spiked by around 60 percent to 448,000 tonnes during April-July 2021,” said Bhati of CARE Ratings.
Experts believe that the cotton prices are going to surge further in the months ahead beucase of a decline in stocks, largely in India, Brazil, and Turkey, leading to an increase in the demand-supply gap.
An expected decline in the cotton acreage in China, India and Pakistan will put further pressure on prices going forward, they said.
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