Whalesbook
March Output Plunges Amid Rising Costs, War
India's textile and apparel output contracted sharply in March, showing a mix of ongoing price rises and the impact of global conflict, revealing deeper weaknesses in the sector.
Soaring Raw Material Prices
Manufacturers are facing sharp price increases for essential materials. Cotton yarn costs are up 20% this month, while polymers for packaging have jumped 50%. Dyes and chemicals, essential for dyeing, are up 40%, and paper costs rose 10%. These price hikes are linked to rising global energy prices, with Brent crude oil futures surging over 40% in March 2026 to surpass $100 per barrel. The conflict in the Middle East has blocked key trade routes and energy flows, pushing petrochemical feedstock prices like purified terephthalic acid (PTA) and monoethylene glycol (MEG) up by about 30%. These higher costs affect everything downstream, impacting polyester production, the most used fiber globally and directly tied to oil derivatives.
Manufacturing and Exports Decline Sharply
The sharp drop in textile manufacturing (3.6% year-on-year) and apparel production (14.6%) points to a wider slowdown. For the full fiscal year 2025-26, textile and apparel exports fell 2.21% from the previous year, totaling $35.8 billion. March 2026 data shows textile exports down 9.91% and apparel exports down 18.99%, contributing to a 14.02% combined sector decline for the month. This steep fall occurred as India's manufacturing Purchasing Managers' Index (PMI) dropped to a 45-month low of 53.9 in March 2026, the weakest expansion since September 2021. The PMI slowdown was due to rising input costs, softer domestic demand, and increased market uncertainty from the Middle East conflict. While export orders saw record growth in March, this did not make up for weaker domestic demand and operational challenges.
War's Impact on Shipping and Global Competition
The Iran war has caused significant problems through shipping disruptions, higher freight and war-risk insurance costs, and volatile energy prices. This has increased final costs and strained working capital for Indian firms. The closure of critical shipping lanes, like the Strait of Hormuz, has worsened these issues, potentially raising global textile production costs by 10-15%. Competitors are also feeling the pressure. Bangladesh's ready-made garment (RMG) sector saw exports fall 19.35% year-on-year in March 2026, hit by its own energy crisis and global disruptions. While Bangladesh remains competitive in the US, India and Vietnam are gaining ground in markets like the UK due to trade deals. This tougher global competition, along with rising domestic costs, puts Indian manufacturers in a difficult spot.
Squeezed Margins and Structural Weaknesses
The current crisis reveals the Indian textile sector's vulnerability to sudden price jumps and global instability. Its reliance on oil-linked polyester makes the sector directly susceptible to crude oil price swings. Manufacturers face a 'double squeeze': weaker domestic consumer spending and softer export demand, combined with rising costs for materials, production, and shipping. Working capital is tightening. Some companies, like Bindal Silk Mills, are forced to pass on costs, risking lost orders, while others, like Radheshyam Textile, have idled machinery. Input prices hitting multi-year highs in March 2026, along with operational issues like gas shortages affecting labor, paint a grim picture for profits. Unlike competitors with more stable energy or better trade access, Indian firms face higher costs and intense price competition.
Cautious Outlook Amid Ongoing Challenges
The short-term outlook for India's textile sector remains cautious. Ongoing geopolitical tensions, volatile commodity prices, and inflation are expected to keep margins tight and production limited. While government initiatives like the expanded Production Linked Incentive (PLI) scheme aim to boost domestic manufacturing and competitiveness in man-made and technical textiles, their impact may not fully solve immediate problems from rising costs and global economic uncertainty. The industry's ability to absorb these shocks and adapt sourcing and production strategies will be key in the coming months.