Clothes prices to rise as cotton jumps
Wednesday, 26 May 2010
Cotton prices all over the world have jumped as a shortage bites. In Asia, the situation is so acute that Pakistan has slapped a 15pc duty on cotton exports and India has banned exports altogether to keep prices under control. India did, however ease restrictions last Friday, according to Internet.
The trend for European clothing groups to ditch local suppliers in favour of low-cost Asian imports has been around for some time. If price rises are sustained, as many expect they will, these increases will eventually have to be passed on to customers. This is likely to be exacerbated by the weakness of sterling, so retailers can either choose to have their margins squeezed or pass the costs on.
Cotton consumption is expected to rise 2.8pc this year, but so-called "world ending stocks" are expected to fall by 2.6m bales to 50.1m bales. These are primary stocks of a commodity that are held in warehouses at midnight on the last day of each month. Increasing demand and falling supplies generally means just one thing - prices will continue to head higher.
In China, cotton futures hit an all-time high last week because of tight supply and low stockpiles. Prices are up more than 7pc in two weeks and a supply deficit is expected to last throughout the year.
"Shrinking inventories and this year's adverse weather are the main reasons behind the supply shortage, which may expand further until September when sales of this year's cotton begin," according to Wang Yong, an analyst at Hongyuan Futures in Beijing.
A significant amount of the Chinese cotton crop has failed. The China Cotton Association said that heavy snowfall in Xinjiang Uygur, the major cotton-producing area of the country, has led to replanting. China's textile industry is the world's largest consumer of cotton.
According to the US Department of Agriculture (USDA), Chinese cotton consumption is expected to jump by 1.5m bales in the 2010-2011 season to 49m bales. The USDA forecasts that China will import 2.18m tonnes of cotton this year, up from 1.52m tonnes last year. Next year, imports are expected to rise to 2.5m tonnes to meet demand from its textile industry.
In Pakistan, not only is cotton supply tight, but the Pakistan Textile Exporters Association (PTEA) wants caps placed on the exports of cotton yarn. This is because cloth exports have been falling and the PTEA wants the "value added" side of the business to remain in Pakistan. Cloth exports have slumped 11pc between July and April.
India put an outright ban on cotton exports last month, as local prices rocketed. These were eased Friday, but any exports will have to be under licence. The ban reduced the supply pressure in India, with prices falling 20pc since the ban was implement on April 19. However, despite this fall, prices are still one third higher than at this time last year.
About 60pc of India's exports go to China, so the reversal of the ban should help ease the situation there, but prices are likely to rise in India as a result and the ban could be implemented again.
The trend for European clothing groups to ditch local suppliers in favour of low-cost Asian imports has been around for some time. If price rises are sustained, as many expect they will, these increases will eventually have to be passed on to customers. This is likely to be exacerbated by the weakness of sterling, so retailers can either choose to have their margins squeezed or pass the costs on.
Cotton consumption is expected to rise 2.8pc this year, but so-called "world ending stocks" are expected to fall by 2.6m bales to 50.1m bales. These are primary stocks of a commodity that are held in warehouses at midnight on the last day of each month. Increasing demand and falling supplies generally means just one thing - prices will continue to head higher.
In China, cotton futures hit an all-time high last week because of tight supply and low stockpiles. Prices are up more than 7pc in two weeks and a supply deficit is expected to last throughout the year.
"Shrinking inventories and this year's adverse weather are the main reasons behind the supply shortage, which may expand further until September when sales of this year's cotton begin," according to Wang Yong, an analyst at Hongyuan Futures in Beijing.
A significant amount of the Chinese cotton crop has failed. The China Cotton Association said that heavy snowfall in Xinjiang Uygur, the major cotton-producing area of the country, has led to replanting. China's textile industry is the world's largest consumer of cotton.
According to the US Department of Agriculture (USDA), Chinese cotton consumption is expected to jump by 1.5m bales in the 2010-2011 season to 49m bales. The USDA forecasts that China will import 2.18m tonnes of cotton this year, up from 1.52m tonnes last year. Next year, imports are expected to rise to 2.5m tonnes to meet demand from its textile industry.
In Pakistan, not only is cotton supply tight, but the Pakistan Textile Exporters Association (PTEA) wants caps placed on the exports of cotton yarn. This is because cloth exports have been falling and the PTEA wants the "value added" side of the business to remain in Pakistan. Cloth exports have slumped 11pc between July and April.
India put an outright ban on cotton exports last month, as local prices rocketed. These were eased Friday, but any exports will have to be under licence. The ban reduced the supply pressure in India, with prices falling 20pc since the ban was implement on April 19. However, despite this fall, prices are still one third higher than at this time last year.
About 60pc of India's exports go to China, so the reversal of the ban should help ease the situation there, but prices are likely to rise in India as a result and the ban could be implemented again.