Textile, Apparel Exporters Wary Of Volatile Raw Material Prices.

Apparel and textile exporters, who ship products worth more than $20 billion every year, are reluctant to take on new orders from overseas buyers on fixed prices due to high volatility in prices of raw materials. Input prices, especially of cotton, have surged three-fold in the past year resulting in a margin squeeze for exporters who could not hedge their purchases in advance, said company officials and traders.

Most Indian exporters typically book their orders with American and European companies on a fixed price basis for six months. Major exporters such as Arvind Mills, Welspun India, Alok Industries and Orient Craft, among others, have initiated negotiations on various terms which include changing the delivery price if prices of raw materials rise beyond an agreed limit.

Usually, orders are booked on a fixed price for deliveries after six months. Cotton prices have jumped nearly 200% to over Rs60,000 per candy or 355.55 kg in the past year. Welspun India, the largest exporter of terry towels in India, has seen a fall in earnings due to high input cost. For the quarter ended December 2010, its net profit fell to .5 crore, from Rs36 crore in the September quarter, a fall of 86%. Its revenue, however,was down 13% to .511 crore. The company said it will recover as it has initiated appropriate measures for cost control and is also negotiating with buyers for new orders.

"We are negotiating with buyers on various terms such as sharing price fluctuations," said Akhil Jindal, a director of Welspun Group. Thanks to the manufacturing slump in China that diverted demand toward India and other neighbouring countries, India has been exporting more than 65% of its textile products to the US and Europe. However, volatile raw material prices is a concern."Demand for finished products has improved so we are getting some space to negotiate with buyers.

However, price fluctuation could create uncertainty ," said Premal Udani, chairman of Apparel Export Promotion Council. The problem can compound due to global shortage of cotton as large foreign firms are keen to buy out available cotton and export it. But Indian mills do not have enough funds to stock cotton. "Prices in international future markets are very jittery so hedging as an option has become difficult," said Clothing Manufacturers Association of India president Rahul Mehta.

Source : economictimes.indiatimes.com