Price Spike Causing Problems for Textile Companies in Vietnam

By Jim.Robinson|December 29, 2011

Countries with strong textile industries but little domestic cotton production are particularly vulnerable to volatility in international cotton prices, and that, unfortunately, is what is happening in Vietnam. Price increases earlier in 2011, coupled with tight supply, drove prices to an all-time high of more than $2.27/lb in the first quarter of this year.

Prices dropped precipitously in the second quarter, however, forcing Vietnamese textile companies to decrease production, default on contracts, or even go out of business, according to an article published on VietnamNet Bridge.

Vietnam’s domestic cotton production can only meet about 2% of the textile industry’s demand, leaving a void of 98% that can only be filled by imports. Cotton purchased from India and the United States takes about four to six weeks to arrive in Vietnam, while fiber from Africa takes even longer — eight to 10 weeks.

That makes risk management a difficult task for textile mills. It gets even more difficult when you consider that taking out an insurance policy against cotton price fluctuation isn’t possible in Vietnam. Le Tien Truong, deputy chair of the Vietnam Textile and Apparel Association, said textile companies need to learn from the unfortunate events of 2011, adding that in the future, the country needs to encourage domestic cotton production to better insulate the domestic textile industry.