Rising cotton price to hit margins of textile firms

Rising cotton prices are set to hit profit margins of textile and apparel players due to their inability to pass on the high production cost on to consumers as seasonal demand is weak. Cotton, the key raw material for textile and apparel production, has become costlier by 6 per cent in March alone due to lower output last year. Thus, the benchmark variety of cotton jumped to Rs 12,373 a quintal from Rs 11,698 a quintal. Experts believe the natural fibre will continue to move northward. Cotton yarn prices have also jumped 6-7 per cent across all varieties in March.

The industry uses only high quality cotton for technical textiles, which is why importing it for the garment and home textile sectors
is not a viable option for Indian producers. The United States Department of Agriculture (USDA) estimates India’s cotton output at
5.9 million tonne for 2018-19 as compared to 6.3 million tonne for
the previous year.

“While prices of both cotton
and yearn have increased in the last few weeks, fabric prices remained stable which will definitely impact margins of textile companies. Cotton output in India is lower this year than last year. Most importantly, the quality of available cotton has also deteriorated,” said RK Dalmia, President, Century Textile and Industries Ltd.

According to Rahul Mehta, President, Clothing Manufacturers’ Association of India (CMAI), the textile industry works at a very thin margins of 2-3 per cent. “The raw material price rise of 6-7 per cent along with the increase in other
cost is creating pressure on profit margins,” he added.