Production by Indian mills drops to the lowest level since 2004.
That the Indian textile industry is so intertwined with the United States economy has never been so apparent. Yarn production by Indian mills has dropped to the lowest level since 2004. Industry experts attribute this to lower downstream fabric production on account of reduced demand from the US and European markets.
According to a report by Globecot, a global consulting firm for the fiber and textile industries, monthly yarn production in India fell to 325 million kg in July 2008, 4.5 per cent lower than same month last year.
The demand for retail garments and textile products has come down dramatically in the US, affecting Indian fabric manufacturers, who are now cutting down on fabric production. As a result, yarn production is also falling and affecting the yarn producers’ business. Incidentally, nearly 50 per cent of India’s total textile production is exported mainly to the US and Europe.
Total fabric production in July fell to 4,500 million square metres, a decline of 5.4 per cent, the steepest drop in four-and-a-half years.
“The financial turmoil in the American and European markets has brought down the demand for textile products and this, in turn, is impacting exports of all Indian textile products,” said DK Nair, secretary general, Confederation of Indian Textile Industry (CITI).
Increase in cotton prices is another factor being blamed for putting pressure on yarn manufacturers. According to Globecot, production of cotton yarn, which accounts for around 74 per cent of total yarn output (the rest being blended and non-cotton yarn), dropped by 4 per cent to 240 million kg in July 2006 from 250 million kg in the same month last year. Even the non-cotton yarn segment saw a steeper decline in July, falling 9.6 per cent from last year to 28,820 tonnes.
“Over the last 14-15 months, yarn producers have been hit by the hike in cotton prices,” said Rajeev Gupta, chief executive, Trident Industries, a leading manufacturer of spun yarn.
This year, the government has increased the minimum support price of raw cotton (MSP) to 47 per cent, which is quite substantial, according to North Indian Textile Mills Association president Sunil Jain.
| DWINDLING STOCKS | |||
| July 2008 | July 2007 | % change | |
| Yarn output (in million kg) | 325 | 339 | -4.5 |
| Cotton yarn output (in million kg) | 240 | 250 | -4.0 |
| Non-cotton yarn (in tonnes) | 28,820 | 31,587 | -9.0 |
| Fabric production (in million square metres) | 4,500 | 4,743 | -5.4 |
| Source: Globecot | |||
Cotton is an annual crop and its harvest season starts in September and ends in November. According to Jain, yarn producers usually keep a stock for six months. However, this time, due to rise in MSP, the stocks have been stored for a month or two only.
Gupta adds the economic slowdown and higher cotton prices have lowered yarn demand. Agrees Sunil Jain, pointing out that currently yarn is being sold below its cost price, something that is hitting the manufacturers badly.
Citing Trident’s example, Gupta says its yarn output has fallen from 125 tonnes per day to 106 tonnes per day, while earnings before interest depreciation taxes and amortisation (EBITDA) level has decreased to about 8 per cent, from 15 per cent last year.
