India’s denim industry gains as China’s cuts production

Monday, 30 April 2012
The Indian denim industry is on a high thanks to China. With China and the US significantly cutting their denim capacity over last year, Indian denim makers’ business has seen a surge lately. While the domestic market has been growing by 10 per cent, the foreign order books have risen between 10 per cent and 15 per cent, say experts. Meanwhile India has added about 100 million metres of capacity over a year. This has led to India being able to absorb the increased orders from within and outside the country. Competing neighbor, China has cut down production owing to rising labour and energy costs.

On opportunity from the space vacated by China that exports $70 billion of apparel annually, Aamir Akhtar, CEO-denim, Arvind says even if a small percentage of this opens up, it would be huge. Arvind, with an annual capacity of 110 million metres, is the third-largest denim producer globally. India’s present denim capacity is around 800 million metres, with an annual production of 650 million metres. Aarvee Denims, another big player in the denim space expects 100-150 million meters of exports business to come to India this fiscal as China which produces close to 2.5 to 3 billion metres of denim annually slows production. Indeed, While Pakistan, Bangladesh and Indonesia would try to cash in on China’s loss, however experts say if cotton prices remain realistic and the local business environment conducive, India will get some of this business. Akhtar expects the Indian denim market to keep up with the fiscal 2012’s 10-12 per cent growth in this fiscal as well.

Meanwhile demand in the domestic market too too has been growing. In fact, with good growth prospects manufacturers are passing on the increased input costs to consumers and expecting more than 10 per cent year-on-year growth this fiscal. For instance, players like Arvind, the third-largest denim producer globally, are looking forward to this situation as a positive opportunity. Denim players are planning to increase costs due to increase in custom duty and input costs. Companies like Arvind, Sangam (India) and Aarvee Denims have either hiked prices or are planning to do so. For example, Arvind plans to increase prices by 5-7 per cent shortly. It may be noted that Arvind had hiked prices 3-4 months back. Sangam (India), hiked prices by around Rs 2 per metre or 1.5 to 2 per cent across its range of denim products in December. Aarvee Denims too pushed up prices last month by 5-6 per cent. Their reason: while cotton prices have eased other input costs like energy have risen. Thus, they are passing on the increase in input costs.

Now players are hoping that cotton prices along with energy and labour costs remain realistic in India too so that they can get good exports business. Export demand for Indian players largely remains US-driven as Europe is reeling under the debt and slowdown crisis.

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