Sky-rocketing yarn price threatens beleaguered knitwear industry

The ever-increasing price of yarn, which has gone up by 43 per cent a kg in just eight months, and the spiralling cost of raw materials like zippers, threatens to unsettle the multi-crore knitwear industry in Tiruppur.

This is even as the country’s knitwear cluster is taking baby steps in resuming production following the partial lifting of the lockdown induced by the second wave of Covid-19 infections. Exporters and those who cater to the domestic market say the industry would have lost a minimum of Rs 10,000 crore during the second wave while complaining that the input cost has increased manifold due to the increase in the price of raw materials.

While the price of 30s combed yarn has gone up by 43 per cent to Rs 330 a kg in June 2021 from Rs 230 per kg in November 2020, the cost of lycra, the elastic polyurethane fabric used in various clothing, has shot up by around 100 per cent. This is a cause of concern to exporters, especially those who fall under the Micro, Small, and Medium Enterprises (MSMEs) category.

“The spiralling cost of raw materials is the biggest problem that the knitwear industry in Tiruppur is facing today. The cost of yarn alone has gone up by over 40 per cent in the past eight months. Not just yarn, every other raw material that goes into apparel has witnessed a price hike which has, in turn, led to an increase in the input costs,” Raja M Shanmugham, President, Tiruppur Exporters’ Association (TEA) told DH.

“The disturbing trend (the price hike) seems never-ending,” he explained and asked the Union Government to regulate yarn exports by imposing a cap. Tiruppur accounts for over 46 per cent of India’s exports in knitwear and the total exports in the 2020-2021 fiscal from the cluster stood at Rs 24,730 crore.

The steep increase in the price of cotton – Rs 54,000 in June from Rs 48,000 in November 2020 for one candy, which is equivalent to 356 kg – is attributed to the spiralling cost of yarn. Also, irregular supply of raw materials from countries like China due to Covid-19 restrictions is another reason for the price hike.

K G Ganeshan, Partner, Swell Knit said exporters who come under the MSME category are the worst-hit due to the steep increase in the price of raw materials.

“Already we lost several crores when we shut our factories for over a month in mid-May. We expected the yarn price to come down owing to lockdown but on the contrary, it has only gone up. Most buyers do not agree to adjust in the price after inking the deal. MSMEs cannot absorb the loss incurred due to the rising price of raw material as our volume of production is very less compared to large exporters,” Ganeshan said.

Another exporter said 90 per cent of the buyers do not agree to an increase in the product cost after signing the agreement. “My buyer has agreed to help me in offsetting the loss by compensating a particular percentage of the loss. Not all buyers do. When buyers ask the exporters to bear the additional cost incurred after signing of the agreement, those in the MSME sector find it very difficult to survive,” the exporter said.

The industry had suffered one blow after another -- demonetisation, the introduction of the GST regime, and global slowdown. Just when it was recovering from the losses, Covid-19 struck but the multi-crore industry was able to offset much of the loss incurred during the first wave. It was possible because the whole of the world was under lockdown and international buyers accepted the delay in delivery of orders in 2020. However, the situation during the second wave was different.

Shanmugham said India was “isolated” during the second wave as buyers and competing countries did not impose blanket lockdowns that kept their business running. “Most international buyers had their outlets open in key markets like the EU and US, and the excuse of lockdown for the delay in delivery of orders were not acceptable to many brands. Some cancelled orders and others asked exporters to airlift the orders at our own cost,” he said.

The lockdown has also put many exporters from India at a disadvantageous position at a time they are facing tough competition from countries like Bangladesh, and Vietnam, which enjoy free access to several key international markets. Apparel units did not close in these countries during the second wave which put them in a further advantageous position.

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