Textile Sector: Unfolding global geopolitical & economic situations
07 September 2022, Mumbai:
Inflation-induced economic stress and energy crisis are affecting the global textile sector and will have far-reaching implications on development issues. Economic headwinds are been witnessed e.g. soaring energy and consumer product costs leading to an ever-present risk of mismatches between energy supply and demand. Coupled with a reduction in disposable incomes in the UK and EU & looming recessionary pressures will impact the global textile industry.
Strengthening Dollar
According to reports," The US dollar is on a tear, strengthening around 11% since the start of the year & this will increase the price of gasoline paid by importing nations and will put pressure on debt repayment by developing countries like Sri Lanka and Pakistan, which are major textile manufacturing countries. This led to the devaluing of currencies in other countries & is evident from the ongoing crisis conditions in the United Kingdom and Sri Lanka.
The shift in the geopolitical landscape
The World Economic Forum's Global Risks Report 2018 argued that geopolitics is becoming not just multipolar, but also “multi conceptual”. The ongoing Russia-Ukraine war and mounting tensions between China and Taiwan are all contributing to the slowing of the textile sector. There has been a change of guard in the UK with The Rt. Hon. Ms. Liz Truss, becoming the PM; had a direct impact on economic woes there, which resulted in the change in the party leadership. As stated on 07-09 by her the priority is to tackle the energy crisis so that cost of living raises can be controlled. If uncontrolled, analysts predict that inflation may spiral up to 13.3% by Spring in the UK. Such a dire economic situation may affect the sales of textiles and other commodity items.
Demand headwinds
“Yarn enquiry is not there,” stated Mr. V. Shanmugam, GM of Aruppukkottai, Jayalakshmi Textiles, India a cotton spinning mill having 2k ring spindles. Mills are forcing additional weekly holidays or reducing production in states like Gujarat, A.P. & even in T.N. “Our production has come down from 12 tons/day to 8 tons/day,” added Shanmugam.
While the issue surrounding high cotton and raw materials costs has occupied the textile industry for a few months now, it is important to focus on the demand aspects. The demand for textile products has slowed down due to global geopolitical and economic situations.
Even at Rupees 430/Kg for 60s Ne compact cotton yarns, there are not many takers. Mills incur a loss of Rupees 30-40/Kg at such prices,” agonized Velmurugan Shanmugam.
Cautious Optimism
Textile & manufacturing sectors must adopt a new management paradigm, “Caveat Emptor et Venditor.” It indicates that both buyers & sellers must pay attention to global scenarios to have the situation under control. The industry should be cautious in its planning in terms of modernization and non-essential capital expenditure. In my opinion, it is worthwhile to postpone such activities for a period of at least 18 months.
The burden rests in the hands of policymakers and central bankers of nations to have a good grip on their economies to avoid recession. Fall-2022 will be an interesting one to watch, setting the course for the global textile & manufacturing sector for the next few years to come.
(Credits: Dr. Seshadri Ramkumar, Ph.D., CText, FTI (UK), FTA (Honorary), TAPPI Fellow (USA) & TexSnips)
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