Cotton is crazy too.
Since April last year, international cotton futures prices have doubled, with New York cotton futures once rising to about 158 cents/pound, setting new highs since May 2011.
Relatively speaking, domestic cotton spot prices are generally relatively stable, but they are also facing difficulties. Due to the weak downstream cotton yarn market, cotton sales are far less than in previous years. Faced with high foreign cotton prices, domestic cotton prices have limited room for decline, and the contradiction between high prices and low sales is difficult to resolve for the time being.
As the most common natural fiber for making clothing, the “crazy cotton price” is bound to be transmitted to the downstream clothing industry. Summer is coming, which is the peak sales period for T-shirts. How will the price of T-shirts be affected this year?
Source: Visual China
US cotton prices triple in two years
International cotton prices have been rising for some time.
Since the low of 50 cents/pound in April 2020, New York cotton futures prices have nearly tripled in two years and are currently hovering at 145 cents/pound, up about 30% from the end of 2021. This is also a new high in international cotton prices in 11 years.
There are various reasons behind the crazy cotton prices.
In Texas, the United States, the world’s main cotton-producing area, extreme drought is visiting. In sync with international cotton prices, the extent of extreme drought in Texas is also at its highest point in 11 years, and the drought situation is likely to get worse.
Cotton harvests in Texas were largely abandoned due to scant rainfall. As a production area that accounts for half of the total U.S. production, Texas’ cotton harvest is of great importance. According to the forecast of the United States Department of Agriculture, the cotton abandonment rate in the United States this year has more than doubled year-on-year, and the output has dropped significantly.
Image source: Pexels
At the same time, clothing consumption has rebounded after the epidemic, and signs of shortage of raw material cotton have strengthened; due to food shortages caused by the crisis in Ukraine, expectations that the United States will reduce cotton planting and increase soybean planting are also further pushing up the market.
The United States is the world’s largest cotton exporter, accounting for one-third of global cotton exports. In India, the world’s second cotton producer and third exporter, the cotton market here has also seen new changes recently.
Due to the sluggish domestic cotton production in India, the prices of seed cotton and lint cotton have been rising, reaching record highs, and inflation in clothing and other industries is serious. In order to curb the rise in local cotton prices, the local textile association recommended that the government stop exports. Kotak, India’s largest cotton exporter, has also announced that it will stop exporting cotton to China.
Currently, India has shown signs of increasing overseas purchases to make up for domestic supply shortages – the Indian government announced in April that it would lift import tariffs on cotton by the end of September.
The United States is facing a poor harvest and India is reducing exports. It is expected that international cotton prices will remain high in the short term. The World Bank also recently stated in its report that cotton prices are expected to rise by nearly 40% in 2022 and fall by 6% in 2023 as weather conditions improve.
Cotton prices at home and abroad are upside down by more than 1,000 yuan
As the world’s largest cotton producer and cotton importer, China’s cotton market presents a different situation.
The just-concluded spring sowing of cotton in 2022 is in good condition. According to the China Cotton Association, water and heat conditions in most cotton areas across the country are relatively suitable, which is conducive to cotton sowing and growth. Cotton seedlings emerged in most cotton areas of Xinjiang at the end of April, and the emergence period was earlier than normal and last year.
From a price perspective, domestic cotton futures prices have remained stable this year despite strong external market forces. On May 12, China’s cotton price index was 22,313 yuan/ton, an increase of only 1% from the end of 2021, and domestic and foreign cotton prices were upside down by more than 1,000 yuan.
“Due to import quotas and other restrictions, the linkage between international cotton prices and domestic cotton prices is not particularly close. However, due to low domestic cotton stocks and the export demand of the cotton textile industry benefiting from the depreciation of the RMB, it is expected that there will be no significant basis for domestic cotton prices to fall in the future. Recent advances Factors such as poor exports and poor logistics have restricted the supply, demand and production of cotton, but it is expected that with the gradual optimization of epidemic control in the future, the cotton market will further normalize.” Wang Meiting, a researcher at the Bank of China Research Institute, told a reporter from Times Weekly.
Chemical fiber raw materials surge
In addition to cotton going “crazy”, chemical fiber raw materials, mainly polyester filament, are also skyrocketing.
Affected by factors such as the conflict between Ukraine and Russia and global inflation, although consumption has tightened during the epidemic, energy countries have reduced supply through production cuts and other methods, causing international oil prices to rise instead of falling, breaking through the $110 mark.
On May 13, local time, international oil prices rose sharply. As of the close of the day, the price of light crude oil futures for June delivery on the New York Mercantile Exchange rose by $4.36 to close at $110.49 per barrel, an increase of 4.11%; the price of London Brent crude oil futures for July delivery rose by $4.10, It closed at US$111.55 per barrel, an increase of 3.82%.
Driven by international oil prices, the prices of PX, PTA, and ethylene glycol in the downstream polyester industry chain have also begun to rise. Major chemical companies control production capacity and maintain low inventories through a series of means such as suspending production, reducing production, and arranging maintenance. At the same time, they maintain a balance between supply and demand of chemical raw materials on the market and can follow the rise in crude oil prices.
On the evening of May 11, PTA futures suddenly hit the daily limit, which is a concrete manifestation of this situation.
Compared with crude oil and PTA, the situation of polyester filament seems to be better in the recent stage. Although the price has increased a bit, the increase does not seem to be that exaggerated. However, this is only short-term. In the long-term, since the polyester price fell to the bottom of around 7,000 in December last year, it has been rising all the way. The monthly average price has soared from 7,048 to around 8,200, an increase of 14%.
During this period, the price of polyester yarn has not increased that much. It is not that polyester factories do not want to increase the price of polyester yarn, but that even at such a price, many cloth owners find it difficult to accept it.
The lack of orders is even more “terrible”
The analysis of the supply and demand situation of China’s agricultural products in May released by the Ministry of Agriculture and Rural Affairs mentioned that downstream textile companies have insufficient orders, weak demand for raw materials, slow lint sales, and the market generally takes a wait-and-see attitude towards the market outlook.
“Affected by the epidemic, many garment factories have no orders this year and are relatively depressed. Many textile manufacturers are semi-closed.” Liu Meng, a garment processing employee in Zhejiang, told a reporter from Time Weekly.
According to survey data from the China Textile and Apparel Federation, in the first quarter of 2022, the textile industry prosperity index was only 42.6, down 14.5 and 19.7 percentage points from the same period last year and the fourth quarter of 2021 respectively.
In addition, according to data from the National Bureau of Statistics, the textile industry’s capacity utilization rate in the first quarter was 78.2%, 0.1 percentage points lower than the same period last year. According to media reports, the average operating rate of the Zhangcha market in Foshan, Guangdong is only 20%, and the operating rate of gray fabric companies in Jiangsu and Zhejiang is only 30%. The traditional peak season of “gold, three, silver and four” has basically come to nothing.
In fact, the low capacity utilization rate in the textile industry is mostly related to the consumer side. In the first quarter, retail sales of clothing, shoes, hats, and knitted textiles fell by 12.7% year-on-year.
Limited impact on clothing terminal selling prices
Although the recent increase in domestic cotton prices has been limited due to the influence of the consumer side, overall, domestic cotton prices are still at a ten-year high.
Source: China Cotton Information Network
Almost in sync with the external market, domestic cotton prices have been rising since April 2020.
On April 2, 2020, China’s cotton price index was 11,105 yuan/ton, doubling in two years. Especially in the second half of last year, cotton prices rose by nearly 10% within a month.
“The rise in cotton prices will definitely have a great impact on the clothing industry. At the same time, the price of oil has also increased, leading to high chemical fiber prices.” Liu Meng told a reporter from Time Weekly. However, Liu Meng did not give a definite answer as to whether the increase in raw materials will directly lead to an increase in clothing prices.
She said: “For example, some prices were confirmed with customers half a year ago, but the prices have increased since then. It is difficult for us and customers to adjust the prices. Due to various reasons such as the epidemic at home and abroad, the market is not particularly prosperous, so the prices have also changed. Can’t take on a lot.”
From the perspective of consumer terminals, will the price of clothing increase significantly?
Image source: Pexels
Tan Fei, founder of Shenzhen Osha Shijia Clothing Co., Ltd., whose main business is on the e-commerce platform, told Times Weekly reporters: “The prices of raw materials such as cotton and wool have increased significantly, but our prices will not change. Including T-shirts For this type of clothing, the fabric cotton will be used more frequently, but the price will not change. New products released in the future will also be priced based on the workmanship and the fabric used.”
A clothing manufacturer that supplies e-commerce platforms also told Times Weekly reporters that although cotton prices have increased, there will be no significant increase in clothing prices recently.
“The cost of fabrics actually does not account for a large proportion of the terminal selling price of clothing. Therefore, under the current sluggish growth rate of residents’ income and weak demand, it is difficult for the increase in cotton prices to be transmitted to the terminal selling price of the clothing industry.” Wang Meiting said.
�Including clothes such as T-shirts, the fabric cotton will be used more frequently, but the price will not change. New products released in the future will also be priced based on workmanship and fabrics used. ”
A clothing manufacturer that supplies e-commerce platforms also told Times Weekly reporters that although cotton prices have increased, there will be no significant increase in clothing prices recently.
“The cost of fabrics actually does not account for a large proportion of the terminal selling price of clothing. Therefore, under the current sluggish growth rate of residents’ income and weak demand, it is difficult for the increase in cotton prices to be transmitted to the terminal selling price of the clothing industry.” Wang Meiting said.
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