Exporting yarn to China: total control and price-competitiveness
The inside story from a successful Indian yarn supplier
Exporting yarn to China is both a massive opportunity and a tremendous challenge. The market is huge and diverse, the rewards can be worthwhile – but the risks are great, and increasing. The key success factors are the same as for any other market area: control of sourcing, control of quality and control of costs. Above all else in China, price competitiveness is essential. One of India’s leading yarn suppliers, Kikani Exports, has 12 years’ experience in exporting to China, firstly as a yarn trader sourcing from Indian mills and latterly also as a spinner in its own right. In this special article the company shares some of its insights.
Managing Director Vrajesh Kikani explains that the biggest difference between China and other export markets is the volume of business available: “In China the volumes are huge. We started selling there in 2004, with about 60 tons per month. That increased over time to as much as 4,000 tons per month by 2014, but in the past year the market has been more depressed, so we have recently been at a level of around 2,000 tons.”
Despite the volatility, China remains a crucial customer for Kikani and other suppliers from India, together with Bangladesh representing about 60% of total exports in some cases. “If China stops buying Indian yarn, it is a disaster. We simply have to deal with China,” Mr. Kikani says. “The domestic market cannot take the big volume of Indian spinning mills, and the textile industry and especially cotton spinning is an important industry which employs a lot of people.”
Quality strategy and in-house spinning
Kikani’s experience in yarn trading has given the company a valuable overview of the requirements spinners must fulfill to survive in the ultra-competitive Chinese market. Quality management is right at the top of the list, and Kikani has put in place a carefully-planned strategy to ensure consistent control of every aspect. It begins with sourcing – the right yarns at the right price from reliable spinners. “Latest technology and process control is also necessary,” Mr. Kikani says.
The company has a fully-equipped testing laboratory, with latest USTER technology for fiber and yarn quality assurance. “We rely on USTER guidelines, ensuring our quality consistency within defect tolerances below 5%. Staff training for quality management is also a priority, and we implement both routine quality checks and random audits.”
It was this quality-minded approach that led Kikani to invest in its own spinning mill operation, to extend the options beyond its yarn trading business. The new mill, in the Ahmedabad District of Gujarat, started up in 2015, expanding to 29,376 spindles and 4,320 TFO drums by the end of the year. Attractive incentives from the regional government helped the investment decision, but the desire to control quality to its own standards was also important: “As a trader, we were not always able to convince the quality conscious-customer. This prompted us to look into backward integration, focusing only on value-added yarn for niche markets,” Mr. Kikani says.
The company’s in-house yarn production is combined with yarns from known and trusted spinners in India. Kikani uses experience gained over several years to identify appropriate sources for each specific count range and quality level. A special advantage for knitting yarn is Kikani’s focus on a Gujarat cotton type known as Shankar 6, which is said to have the lowest contamination rate of the entire Indian crop – although still high compared with cottons from the USA or Australia.
Indian cotton: tackling the contamination issue
Competing in China is a double-edged problem, facing both local yarn producers and other exporters. Kikani has a major advantage here, with its access to Indian cotton growers and its detailed knowledge of the characteristics of the raw cottons available. Contamination by foreign matter is a serious issue, and although it is generally ‘expected’ by spinners and their customers, there is a constant and growing need to monitor and control it.
Kikani achieves this in its own spinning mill by a combination of the latest USTER® JOSSI MAGIC EYE detection in the blow room and USTER® QUANTUM 3 (PP option) clearers on its winders. But contamination remains an inherent problem with Indian cotton, because of the typical farming practices in the cotton fields.
Says Mr. Kikani: “We always inform our customers about contamination levels in our yarns, which are controlled as well as possible. Quality is one of our main advantages over local Chinese yarn producers, along with our business principles and reputation in contract fulfillment. In fact, we find that quality requirements from most world markets are increasing, so there is very little difference in that respect between China and other markets.”
Overall, Kikani has a customer base approaching 100, about 50% of which is based on long-term stable relationships. “We are strong in customer relations,” Mr Kikani says, “but that’s not generally how things are done in China, where business tends to be very much along opportunistic lines.”
Trading houses mean volume business
Kikani sells to major trading houses in China, as well as to individual weaving and knitting companies and yarn dyers. The yarn range includes both carded and combed variants, across as count range of Ne 16 to Ne 40 ring spun, including compact, and Ne 6 to Ne 24 in OE-spun. Most yarns are 100% virgin cotton or blends with waste cottons.
Although the Chinese export business is large and extremely important to Kikani, it is not usually as lucrative as sales to the domestic Indian market, where prices are generally higher. However, the China trade offers greater volumes, and is mainly financed through letters of credit (LCs), which provides for quicker payments compared to locally-negotiated deals with Indian customers. Selling direct to mills in China can also attract better prices, but many Chinese weavers and knitters are unable or unwilling to work through LCs, preferring to pay in currency or to hand the purchasing over to traders.
For the future, Mr. Kikani is expecting the current tough market environment to become even tougher: “Our volumes into China will come down for sure, because of increasing competition from Vietnam and other countries, as they have preferential duty structures,” he says. “Hence, unless Indian suppliers are extremely competitive, yarn sales to China will be an even greater challenge in the days to come.”
About Uster Technologies Ltd.
The Uster Group is the leading high-technology instrument manufacturer of products for quality measurement and certification for the textile industry. The Group provides testing and monitoring instruments, systems and services that allow optimization of quality through each individual stage of textile production. This includes raw textile fibers, such as cotton or wool, all staple fiber and filament yarns, as well as downstream services to the final finished fabric. The Uster Group provides benchmarks that are a basis for the trading of textile products at assured levels of quality across global markets. The Group’s aim is to forward know-how on quality, productivity and cost to the textile industry.
The Group is headquartered in Uster, Switzerland and operates through a worldwide Market Organization complemented by Technology Centers. It has sales and service subsidiaries in the major textile markets and Technology Centers in Uster (Switzerland), Knoxville (USA) and Suzhou (China).