Experts Fear Cotton Price Rise Will Trigger Domino Effect In Textile Industry

In the September 2010 agricultural market monthly report, the US Department of agriculture pointed out that in 2010, the global cotton inventory was only about 40% of the annual demand, and cotton prices were close to the highest level in 15 years.

Supply and demand imbalance cotton prices leap up

The US agricultural market monthly report September shows that in the past 5 years, the supply of cotton in the world is in short supply.

Global cotton consumption picked up from 2009 to 2010, 15% higher than supply, while inventories will be reduced by 36%, the lowest level since 1994.

Morgan, Stanley's head of commodities research in New York, predicts that the price of cotton futures delivered in 2011 will rise to the level of spot trading.

The US Department of agriculture estimated that the global cotton output in 2010 to 2011 was 24 million 890 thousand tons, an increase of 11.11% tons from 2009 to 2010, but still increased by 11.11%. But it is still lower than the 25 million 50 thousand tons in 2004 to 2005 years. In the same year, cotton consumption was 26 million 20 thousand tons, basically recovered to the level of consumption before the global financial crisis. Compared to the year of the year of the 26 million 20 thousand, the cotton market has increased.

Rains, a FCStone analyst at Brazil commodity brokerage firm, said the United States is the world's largest exporter of cotton.

But in recent years, many American farmers abandoned cotton seed beans, resulting in the reduction of cotton field area and production.

Despite the government's huge Cotton Subsidy, cotton prices have fluctuated mostly in 1980s over the past 10 years, while soybean prices have risen by about 50%.

In addition, in 2010, due to the failure of cotton to meet domestic demand, India, the world's second largest cotton grower, issued export restrictions.

The government of India expects to resume cotton exports in October, but exports only 5 million 500 thousand packages, about 18% of the estimated 29 million 500 thousand output this year.

India textile industry, with 35 million employees, hopes the government will continue to extend export ban and raise export tariffs.

Pakistan, the world's fourth largest cotton grower, has suffered a major flooding disaster this year, resulting in a sharp decline in cotton production. At present, Pakistan officials have reduced the cotton production from 2010 to 2011 to 1 million 970 thousand tons in 2010.

All these factors aggravate the tension of global cotton supply and attract speculators into the cotton futures market.

In October 14th, the New York Futures Exchange main cotton contract price in December closed at 114.87 cents / pound, a record high in 15 years, compared with the February 5th 68.28 cents / pound price rose 68.23%, compared with the same period last year 67.18 cents / pound price 70.99%.

Cotton price rise has surpassed crude oil, copper and other industrial bulk commodities. Jordan Leigh, President of the American cotton Shippers Association, said, "this is a bull market which is difficult to stop rising."

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Clothing costs rose significantly

Insiders pointed out that if cotton prices rise too fast to the price of clothing products, the demand for cotton products will be suppressed.

VFC, the world's largest garment manufacturer, owns famous jeans brands such as Wrangler and Lee, said that the price of fabric, which is mainly made of cotton, will lead to a marked rise in the cost of jeans production at the end of this year and next year.

Rains said, "the average cost of imported jeans will increase by about 3.2% in 2010."

Levy Strauss and LeviStrauss are now experiencing a substantial increase in the cost of denim, which will push up the price of jeans, jackets and other garments.

During the cotton harvest season in the past, the price of jean fabric manufacturers supplying cloth to jeans producers is fixed, but this year the prices are rising every week or even every day.

Mathews, vice president of fabric sales at PCCA, a Dezhou denim manufacturer, said the current price volatility is "the craziest period I have ever experienced".

Internationally renowned luxury brand Chanel (Chanel) has recently increased its price globally, with some classic designs up to 30%.

Richard Noel, chairman and chief executive officer of Hanesbrands, a famous clothing manufacturer, said: "the era of deflation in the fashion industry is over. The global consumers are aware that the price of clothing is rising, the cost is rising and the supply and demand are not balanced, which will have an impact on the production of clothing prices."

"There is no doubt that a wide range of price increases due to rising costs will directly affect the overall price of clothing in 2011," he said.

In order to control costs, international garment dealers have accelerated the flow of goods and reduced the inventory, which has caused great pressure on the turnover of suppliers.

Take Han Bai as an example, in order to pport goods from Asia and Central America back to the United States as soon as possible, the company has spent $15 million on air freight this year.

Dealers and retailers "naturally" want to pass on increased spending to consumers.

But in Europe and the United States, where the global economic recovery is sluggish and the unemployment rate is as high as 9.5%, clothing prices are no doubt a challenge.

Bob Thea, senior vice president and chief financial officer of Wei Fu Group, said, "the direct impact of cost changes on retail prices will be more clearly reflected in product pricing in 2011, and consumers will feel a sharp rise in clothing prices."

David Bask, executive director of AlixPartners retail department, an American business consulting firm, said that clothing manufacturers, distributors and retailers will carry out a long seesaw battle for prices, and more and more businesses will be defeated and quit in this competition.

Domino effect

Prices are rising not just in cotton.

Recently, the price of polyester, chemical fiber, polyester fiber, artificial cotton and wool has also risen to varying degrees, especially the market trend of polyester staple fiber has been rising steadily, which has caused enormous cost pressure to textile and garment enterprises.

PTA is the main raw material for producing polyester staple fiber, which accounts for more than 80% of the production cost of PET staple fiber. The rising trend of PTA in upstream raw materials will not be changed, which will become a major factor in the increase of polyester cost price.

In addition, the tight supply and demand of the market is the key to the price rise of polyester staple fibers. The market of downstream yarns is booming, and the demand for PET staple fiber is increasing. This has led to the continuous rise of the current market.

Of course, the surge in cotton prices has boosted the price of PET staple fibers.

Analysts said that the expected increase in cotton production and short supply in the New Year beginning in September will affect the high price fluctuation of cotton prices in the coming period.

In order to avoid a significant increase in cost, the composition of the fabrics in autumn and winter may be greatly adjusted. Enterprises will reduce the proportion of cotton clothing, expand the investment in polyester and water washing fabrics, or reduce the cotton content in cotton clothing, add more ingredients such as viscose, chemical fiber, polyester fiber, etc., will be more selective in the procurement process, and choose a more cost-effective surface accessories.