Global Textile Sector Struggling with Geopolitical and Economic Situations
September 7, 2022 Inflation-induced economic stress and an energy crisis are affecting the global textile sector.
There has been a change of guard in the United Kingdom with Liz Truss becoming Prime Minister as a direct impact of economic woes there.
Soaring energy and consumer products’ costs, coupled with a reduction in disposable incomes in the United Kingdom and EU, will impact the global textile industry. Additionally, strengthening of the U.S. dollar will increase the price of gasoline paid by importing nations. That will put pressure on the debt repayment by developing countries like Sri Lanka and Pakistan, which are major textile manufacturing countries.
The rising cost of living, the energy crisis, inflationary pressures, the ongoing Russia-Ukraine war, and mounting tensions between China and Taiwan are all contributing to the slowing of the textile sector.
“Yarn enquiry is not there,” stated Mr. Velmurugan Shanmugam, General Manager of Jayalakshmi Textiles, a cotton spinning mill with 72,000 ring spindles. Mills are forcing additional weekly holidays or reducing production in states like Gujarat, Andhra Pradesh, and even in Tamil Nadu.
“Our production has come down from 12 tons per day to 8 tons per 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. Demand of textile products has slowed due to global geopolitical and economic situations. This is evident from the ongoing crisis conditions in the United Kingdom and Sri Lanka.
As stated by Prime Minister Truss, the priority is to tackle the energy crisis so that cost of living raises can be controlled. Policies in the near short term must tackle energy costs and allied issues to have control on the economy. If uncontrolled, analysts predict that inflation may spiral up to 13.3% in the United Kingdom by Spring. Such a dire economic situation may affect the sales of textile and other commodity items.
“Economic scenarios in Europe and elsewhere are affecting the textile industry in India,” agonized Shanmugam. “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.”
Textile and manufacturing sectors must adopt a new management paradigm: “Caveat Emptor et Venditor.” This indicates that both buyers and sellers must pay attention to global scenarios to have the situation under control. The industry should be cautious in their 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 policy makers and central bankers of nations to have a good grip on their economy to avoid recession. Recessionary pressures along with higher input costs will have dire consequences for the industry.
Care needs to be exercised by the stakeholders of the textile industry. Fall 2022 will be an interesting one to watch, which will set the course for the global textile and manufacturing industry for the next few years to come.
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