India's denim faces worst crisis in ten years (Price Report)

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12 June 2006

Indian denim producers continue facing their worst crisis in more than ten years. Prices are being depressed by surging competition from Turkey on export markets and from China on the domestic market. Denim producers are increasingly shifting to denim clothing production, as a result.

- From Emergin Textiles.com Indian Correspondent Raj Menon

The Indian denim industry continues to suffer, under the most severe depression it has witnessed during the last decade.

All important players have reportedly cut production and the average operating capacity in the industry is around 40-50 per cent.

For instance, Arvind Mills is today operating at around 50 per cent capacity.

Raymond Denim, with an installed capacity of 45 million metres a year, is learnt to be producing 30 million metres.

KG Denim has an installed capacity of 35 million metres, but is known to be producing around 15-20 million metres today.

Similar is the case with all other major denim manufacturers.

And prices have touched rock bottom. According to an officials at Century Denim, “It is a buyers’ market now."

Buyers imposing lower prices

"Denim fabric buyers see the samples and quote a price. The mills do not have much say in this, as inventory levels are too high, and manufacturers and wholesalers are only looking at depleting these stocks."

”For instance, during November-December 2005, price of denim 14.5oz, OExOE was around US$ 1.93 per metre. Today, the fabric is selling at as low as US$ 1.31-1.33 a metre. The most hard-hit variety is 10.5oz OExOE, which was selling around US$ 1.71-1.78 a metre. Current price is down to US$ 1.16-1.18 a metre."

This variety is the fastest moving in the country, and has the highest production.

The recent drop in prices has led almost every producer to drastically cut or even stop production of this fabric, as the stock position is very bad here.

According to market watchers, there could be some improvement in the situation around July-August.

However, this would only reflect lower inventories after denim companies reduced production.

It could take another 4-5 months for demand to pick up, they caution.

Worst crisis in ten years

The industry believes this is the worst depression that denim has faced in India since 1994-95, at least.

During the 1994-95 crisis, Arvind Mills by far was the most important player, in addition. There were not so many producers in the market. So the impact was not as bad.

Many companies entered denim production when demand rebounded.

When demand again slackened, more players were impacted with many shut-downs.

This time, the condition is even worse, with all major producers having expanded capacities.

Century Denim, which had a capacity of 10 million metres for the last eight years, has expanded to 20 million metres in April 2006.

Arvind Mills expanded capacity this year. Raymond Denim, Mafatlal Burlington, and many others have also raised production.

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