If China loses 10%, our exports will soar by 60%
With every passing this year now, our confidence is improving. There are a few structural changes which I think have happened to the textile industry over the last several years and the most important being that this generally the demand and supply balance has been restored.
– Rajesh R Mandawewala, MD, Welspun India
With every passing this year now, our confidence is improving. There are a few structural changes which I think have happened to the textile industry over the last several years and the most important being that this generally the demand and supply balance has been restored. So from a completely buyer-driven market to now a balance and in some cases, we as suppliers have an edge so this clearly the balance in the industry has been restored.
As you are aware in 2004 the quota has disappeared, and that is when there was this huge proliferation of new factories, new capacities which happened all over the world and that created a huge supply surplus over demand across the world. I am talking about textiles in totality. So that led to the industry suffering, the margins getting compressed with terrible financials and companies are getting ahead of themselves in terms of committing capital expenditure and all that. All that has played out in the last 3 or 4 years and not much investment has happened. Also a lot of capacity has gone out of the system in China, in Pakistan, in India.
All the inefficient capacities whether from a technology perspective or financial distress, all put together there is a lot of capacity that got squeezed out of the system. In the last 3 years, particularly 2 to 3 years, we are clearly witnessing a good balance now and the recklessness in terms of making capital expenditure has stopped. The demand-supply parity is restored. Consequently, the pricing power has returned to the industry which we had completely lost. India is a cotton surplus country now. As opposed to China which is let us say a third of its consumption needs to be imported, Pakistan again one-third consumption needs to be imported and the apparel destinations like Vietnam, Bangladesh, or these guys they do not have their cotton.
Within textiles in the cotton area, our advantages are becoming more and more pronounced as time is going by.
So this I would say is the second structural change that has happened. The American crop is continuing to sink. The Indian crop is growing and consequently, this last year we were the second largest exporters of cotton in the world after America. Soon I think we will be the largest. Not only we have a strong cotton base, we also have a huge yarn industry. Almost 25 per cent of all cotton yarns that we make are now exported. Over and above that I think as a country we have a good balance of the other fibres as well, decent polyester capacity, mix of silk year, viscous rayon capacities, so all-in-all we are a good mix of various fibres that go to use the industry. But the advantage on cotton is very pronounced.
The cotton-based industry will grow faster here in India as compared to the synthetic, both will grow, but the cotton will outgrow because of the advantage. India´s export of cotton yarns has gone up from 700,000 tonnes to almost 1.5 million tonnes. Our current run rate is about 120,000 tonnes to 130,000 tonnes every month. Again to summarise,this raw material situation particularly on cotton is very robust in India. So you are seeing now in China what we saw in Japan and Korea and Taiwan, about 15 to 20 years back.
The people there do not want to go back and work in factories. This every young kid now wants a white-collar job or a blue-collar job, and is not interested to go and work in the factories. All the industrial development happened on the east coast of China. They used to have these migrant workers from the west; they used to migrate to the east to work in all these factories. The wage rates in the east have become $500 a month; so very steep rise in the wages there.
If China loses 10 per cent, our business our exports will increase to 60 per cent. If they reduce 10 per cent global trade, we will go up to 60 to 65 per cent. So the biggest advantages sit
