Textile and garment makers may be forced to revise down their full-year export target on falling revenue as buyers struggle to renegotiate contracts stipulating high cotton prices, an association says.
The global economic downturn is resulting in a reduction in global demand for the products, pushing down selling prices and forcing foreign buyers to seek contract renegotiations, said Indonesian Textile Association (API) secretary-general Ernovian G. Ismy over the weekend.
"Textile and garment prices have fallen in the past two months alone by 15 to 20 percent on average," he said.
"It is prompting buyers from the United States, Japan and Europe to request contract renegotiations," said Ernovian of Indonesia's three biggest export destinations.
"As a consequence, revenues of manufacturers in Central Java are expected to decline by 30 percent and that of those in West Java by an average of 30 percent."
The two provinces supply more than 70 percent of Indonesia's textile and garment exports, with West Java contributing the larger share.
The association earlier cut its 2008 export estimate, citing lower demand amid a global economic crisis that is pushing several developed nations, including the United States, Germany, the UK and Japan into recession.
The association targets the industry to reap US$10.84 billion in export revenue this year, lower than a previous estimate of $12 billion.
In the first eight months of the year, export reached $7.17 billion, compared to last year's full-year export revenue of $10.06 billion, according to the Central Statistics Agency (BPS).
At a time when foreign buyers are seeking to renegotiate falling prices, Indonesian manufacturers have been unable to stipulate lower cotton prices in import contracts, despite the commodity's falling value, API reported.
API chairman Benny Soetrisno, who owns public cotton importer PT Apac Inti Corpora, said the company had been unable to renegotiate its cotton import contracts as the cotton was largely traded on future markets, meaning there was little or no room for change.
Citing an example, Benny said he could not renegotiate orders placed in July that agreed a price of 80 US cents per kilo for a March 2009 delivery, despite that the current price was 42 US cents per kilo.
"I still have to pay up because otherwise I will have to stand in an arbitration court and risk myself and my company being blacklisted and will not be able to open an L/C (letter of credit) account in the future."
However, Benny said he was upbeat textile and garment industries would still be able to post a growth next year to book an export revenue of $11.07 billion, from this year's projection of $10.84 billion.
Benny said the projected growth would be supported by rising labor and energy costs in China -- Indonesia's main competitor in textiles and garments -- as the Chinese yuan was strengthening, while domestic consumption in China was increasing.
