Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.

What better time than the eve of Lunar New Year to remind the bloated Chinese steel industry that ensuring its survival has become a hong bao, a red envelope into which the rivals are being forced to put all their profit? After declaring a 21.3 billion rupee ($315 million) loss in the December quarter, Tata Steel's boss for India and Southeast Asia complained about ``predatory imports," the European operations chief blamed the Chinese for ``unfair'' trade practices, and the group's finance head despaired about the ``depreciation of various emerging market currencies," which he said was hurting pricing.

The laments are all justified, but they're of little solace to shareholders in India's largest steel producer. Tata Steel's stock has fallen more than 40 percent over the past year and with analysts now starting to predict a loss even in the financial year ending March next year, the outlook is less than comforting.  

Remarkably, though, while Indian steel continues to get whacked for being uncompetitive amid a China-led glut, the nation's textile industry, which also competes with the People's Republic, is spinning investors a tidy fortune:

When Towels Trump Steel
Top Indian metal producers have disappointed investors; textile exporters have surged
Source: Bloomberg
*Data as on Feb. 4, 2016

This isn't how analysts were expecting the story to play out. After all, bath towels and bed linen are basically cotton -- a commodity. And its price has slumped 36 percent since early May 2014, a clear source of pressure on revenue because in a competitive marketplace, cost savings have to be passed on to consumers.

Tale of Two Commodities
Steel prices have slumped, but cotton has also weakened
Source: Intercontinental Exchange; New York Mercantile Exchange; Bloomberg

Add to that the yuan's 5.5 percent decline over the past six months, and there have been ample reasons for investors to worry about how producers will tackle their Chinese rivals. China, India and Pakistan control 85 percent of the world's home-textile market.

Such was the apprehension that the management of Welspun India, the country's largest textile exporter by market value, participated in a conference call just three days after China's shock Aug. 11 devaluation to deliver a simple message: so long as the yuan didn't weaken more than 10 percent against the Indian rupee, there would be no shift in market shares.

Seems like it wasn't an empty boast. On Tuesday, Welspun reported a 21 percent increase in profit for the December quarter from a year earlier while sales grew more than 12 percent.  

So how are relatively unknown Indian textile companies more successful in dealing with Chinese competition than Tata Steel? The simple answer is: China's rebalancing. To reorient its economy toward more domestic consumption, China has, among other things, increased factory workers' wages. But that policy thrust, coupled with a diminishing supply of rural labor, has pushed up costs for cotton farmers. So between 2011 and 2013, Chinese authorities embarked on an expensive price support program by buying cotton farmers' produce at above-market rates and stockpiling it. The net result, as a Welspun executive explained, is a 7 to 10 percent competitive advantage in India's favor. That's because India's labor is cheaper than China's, and the stockpiled Chinese fiber is ageing. It's both more expensive than Indian cotton and also of inferior quality, and no one likes towels that lint.

Fluffy Mountain
China's cotton stockpiles soared between 2011 and 2013
Sources: USDA, Bloomberg

That same policy imperative of boosting consumption on the mainland, however, is bad news for Indian-made steel. Since households won't spend if their apartment values are falling, China is compelled to rein in its massive oversupply of homes. But without construction demand reviving meaningfully, or authorities in Beijing actually following through on their promise to shut down superfluous mills, oversupply of Chinese metal will continue to rock global metal companies' fortunes.

At least for now, India's humble cotton ball has got one up on Tata Steel.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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Andy Mukherjee in Singapore at

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Katrina Nicholas at