Cotton Single Price Rise In Asia

 

Early benchmark cotton futures nearly doubled to an 11 year high, hitting Asian garment makers hard after soaring freight and fuel prices.

Global cotton prices surged by 70% in a year to a new high since 2011 in May as weather affected harvests in major producers.

Asian garment manufacturers' losses expanded, and some small factories stopped production, undermining the recovery after the epidemic and further increasing inflationary pressure.

During the conflict between Russia and Ukraine, the uncertainty of European demand outlook has put Asian garment manufacturers in a dilemma, and the rise of cotton prices has made it worse.

Asian garment manufacturers rely heavily on Europe and the United States for their ready to wear exports, with major customers including Wal Mart (WMT. US) and Nike (NKE. US).

More than 60% of the clothing produced in Bangladesh is exported to Europe. "Our plant is running at full capacity. But what's the price? We're barely profitable," said siddiqur Rahman, managing director of sterling group, which supplies H & M and gap Inc (GPS. US)“

In India, the world's leading cotton producer, several small clothing manufacturers are struggling to meet orders made three months ago, when cotton prices were about a third lower than current levels. India's cotton prices more than doubled in a year after rainfall affected the cotton harvest.

"Many small businesses have stopped taking new orders," said Ashok juneja, President of the Indian Textile Association

Ravi Sam, managing director of Indian exporter adwaith textiles, said: "buyers are not willing to raise prices", which is a double whammy for garment manufacturers. "They are also uncertain about summer demand, especially in Europe," he added.

Transportation costs have quadrupled from pre epidemic levels, while international brands cannot absorb the extra costs.

To cut costs, some mills are using more synthetic fibers, which can cost between $0.60 and $1.0 per pound for synthetic fibers and $1.40 per pound for raw cotton.

"According to the news we heard from Asian textile mills, they are increasing the spinning ratio and favor polyester." Said Rogers Varner, President of Varner brokerage. However, limited by the contract, the scope of fabric replacement is limited.

Industry insiders say costs are unlikely to ease soon.

Traders said cotton prices will rise further as Chinese demand recovers. China accounts for about one-third of global cotton consumption.

Hot weather in Texas should push up cotton prices. It is reported that Texas's cotton production accounts for more than 40% of the total U.S. production.

The rise in cotton prices may eventually push up clothing prices and exacerbate inflationary pressures.

Keith brown, head of Keith brown and Co, a commodity company, said the rise in cotton prices would be transmitted to retail stores, which would have an impact on consumer behavior.