Home textiles was one of the few industries that benefitted the most from the COVID-19 outbreak as people became more hygiene conscious due to the pandemic spread. Before the pandemic outbreak, the industry, in fact, was struggling to maintain its growth due to subdued US demand. However, post pandemic outbreak the scenario took a sudden change as the developed western countries were forced to relook their excessive dependency on China as a main source of supplier which in turn benefitted competing countries like ours. Further, the US decision to ban import of cotton products from China’s Xinjiang region over allegations of use of forced labour last year was a bonus for China’s competitors in international textile market like India.
However, euphoria was short lived as the positives were soon followed by series of negative news. First, it started with issues on logistics front like non-availability of containers and high freight rates. This was followed by rising cotton prices, a problem that has continued to persist even today.
With cotton prices doubling in 18 months, major economies are facing high inflation and rising interest rates. At present, cotton prices are high due to non-availability of cotton.
Movement in cotton prices is largely dependent on the closing stock of cotton, which has been lower than expected due to muted cotton production. Reportedly some of the large international trading houses are hoarding cotton in anticipation of increase in cotton prices. The Cotton Association of India (CAI) Crop Committee has estimated the total cotton supply until the end of cotton season 2021-22, i. e., 30th September 2022, at 413 lakh bales (170 kg), which is 12 lakh bales lower than previous CAI estimates.
However, with the start of new cotton season in October and expectations of good crop yields owing to normal Monsoon, the industry expects softening of prices in the second half of current calendar year.
According to CRISIL, global demand for home textiles is expected to be impacted in the near-term by inflationary headwinds, with big-box retailers pruning inventory and consumers cutting down on discretionary spends. A slowdown in the sales of key US retailers in the past 3-6 months has led to an on-year decline of 5-6% in overall home textile exports from India between January and April 2022.
Meanwhile, leading home textile manufacturers are in the midst of capacity expansion plans. For example, Indo Count Industries has completed its spinning capex, while expansion in home textile to 108m meter from 90m meter which is expected to become operational by 3QFY23. New capex of Rs 270 cr towards additional 68,000 spindles and value-added yarn products is expected to become operational by 4QFY23.Trident, another leading producer and exporter of home textile from India, has proposed a capacity addition of 98,496 spindles and 3,600 rotors in yarn segment. In the sheeting division, it is adding an additional capacity of 70,000 meter/day. The company has guided at a total capex of Rs 1380 cr for the capacity expansion, which is expected to be completed by September 2023.However, Himatsingka Seide has deferred its debottlenecking plans by around six months as it foresees a reduction in capacity utilization in the near term, given the volatile environment, global conditions and high prices.
Notwithstanding the fact that the industry is currently soaked in negative news, manufacturers remain positive on demand in the mid to long term, due to expansion in export opportunities on account of various Foreign Trade Agreements (FTA) signed by India with nations such as Australia and the UAE. An FTA with UK is expected to be finalized soon. First round of discussions on FTA with Europe has already been completed. Such FTAs, along with the government’s steps to support the Indian textile exports in general, reflects positively on the long term outlook for the industry.