The Hindu Business Line : Price crash on the horizon for textile exporters: Report

COME January 2005, and the biggest nightmare of textile manufacturers may well become reality. With the quota regime on global textile trade on its way out, prices are expected to crash like never before and analysts expect an immediate fall of over 30 per cent in prices of major apparel categories, largely due to the competition for volumes from Chinese manufacturers.

According to the Goldman Sachs Global Investment Research, once the quotas are lifted, competition from Chinese manufacturers and suppliers will ensure that competitors would have to whittle down prices by at least 30 per cent.

Also, in 2002, when quotas were lifted on 29 categories of apparel, prices crashed by an average of 35 per cent, and by as much as 70-80 per cent in some product categories.

Even as the price crash looms large, Indian exporters are anticipating that the higher end of the market, which suppliers largely cater to, would not be affected in a major way.

As opposed to this, China's penetration is largely in the middle and lower less mass volume items in the US and the European Union (EU) and it is these categories that are expected to bear the brunt of the crash, according to a leading exporter.

Another major advantage for Indian exporters is that their exposure is mainly to the quota block of the US, the EU and Canada, while China predominantly supplies to the non-quota countries like Japan and Korea.

So, with quotas going, Indian companies will be able to bear the pricing pressure in a better manner since quota premiums for apparel are high and account for 25-35 per cent of the selling price as of now.

Manufacturers hope that prices may not come down for all categories. In the US home textiles market, Indian suppliers expect prices to stay firm in the upper end of the product categories, where Indian suppliers are doing very well with close to 20 per cent market share, an exporter said.

According to the Goldman Sachs report, while prices would crash, manufacturers can find solace in the expectation that global trade in textiles would treble from current levels of around $300 billion to nearly $850 billion by 2015.

According to analysts, the larger Indian exporters, especially those that have an integrated set-up, are likely to weather down the pricing crash and compete with Chinese suppliers.

A process of consolidation is expected to happen over the long run, where the bigger, well-integrated firms would gobble up smaller players to gain economies of scale to take on the Chinese price onslaught.