The Home Textile industry is facing significant headwinds given the rise in input cost, logistical challenges, inflationary pressures, and a volatile global environment, which is putting untoward pressure on margin and demand. What is even more worrying is that China and Pakistan are chipping away at the market share of Indian cotton imports in the US, says a recent study.
A report by says as per OTEXA data, India’s market share in US cotton sheet imports fell to 50% in 4QFY22 from 60% in 4QFY21, whereas China and Pakistan gained about 5% market share each. In the Terry Towels segment, India’s share has fallen by 300bp to 40% in 4QFY22 (v/s 43% in 4QFY21), while China/Pakistan’s share remained constant at 20%/23%.
Trouble for the industry, the report says, stems from the fact that raw cotton prices in India increased YoY and are currently at par with international prices. As yarn and fabric prices are rising in tandem, companies are facing a huge challenge in terms of passing on higher prices internationally.
“What has exacerbated the matter is that depreciation in the US Dollar (USD): Pakistani Rupee (PKR) helped Pakistan gain market share in the US and Europe as buyers see better pricing for its products. USD: PKR depreciated by 21% as against a 6% depreciation in the USD: INR from Sep’21 to May’22. However, the expected signing of the FTA with the UK and Europe will bring Indian products on par with that of Pakistan,” says the report.
Cotton prices have seen a sharp spike due to non-availability of cotton, but the report adds that these elevated price levels are unsustainable and expect it to normalize after another good cotton season. International/Indian cotton prices rose 54%/61% YoY to USD3.11/INR237 per kg in Mar’22. Further, International/Indian prices surged 10% each to USD3.42/INR260 per kg in Apr’22. Changes in India’s import duty on cotton (reduced to nil in Apr’22 from 10%) may deliver some net benefit for the industry in general, the report added.
When it comes to outlook, companies involved in the sector say although there are significant headwinds in the near term, they remain positive on demand in the mid to long run, due to expansion in export opportunities on account of the Foreign Trade Agreements (FTA) signed by India with nations such as Australia and the UAE. An FTA with the UK is expected to be finalized soon. Discussions on an FTA with Europe is set to begin by Jun’22. “Such FTAs, along with the government’s steps to support the Indian Textile exports, reflects positively on the long-term outlook for the industry,” says the report.
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