Cotton at a Crossroads
March 23, 2011 People tend to overuse the word “historic,” often applying it to situations of much less significance than the word implies. But it isn’t hyperbole when it’s applied to the current cotton environment – it’s fact.
Just six months ago, the very idea of cotton selling for $2 per pound was unthinkable, but a growing number of cotton professionals are beginning to think it could happen, and sooner rather than later. While that’s a great situation for those with fiber to sell, it is sending shockwaves through the entire value chain, and some of the decisions being made now could have long-term impacts on the cotton and textile industries.
“There is not necessarily a long-term impact if prices come down again from the levels we are seeing now,” according to Christian Schindler, director general of the International Textile Manufacturers Federation (ITMF). “The central question is, will they fall and if so, to what levels? The surge in cotton prices we are seeing right now is market driven so high cotton prices will drop if supply increases. The question is whether supply will increase sufficiently in the short and medium term. It is expected that supply in the northern hemisphere will expand in 2011/2012, but since cotton is competing with other profitable food crops like soybeans, corn and wheat, the scale and scope of the expansion is difficult to predict.”
Steven Chen, CEO of Tah Tong Textile Co. in Taipei, agrees that the final results are far from apparent: “Cotton’s historic rise in prices currently have not been fully passed along through the textile value chain,” he tells Cotton International. “While yarn prices have risen significantly, garment prices have not risen by the same proportion, as major retailers are unable to immediately reflect higher procurement costs through higher retail prices. The long-term impact of higher cotton prices will depend upon the degree to which retailers will be able to raise retail prices.”
Werner Bieri, CEO of Buhler Quality Yarns, describes how quickly the prices can rise, starting with spinners. “A 50-cent fiber price increase can translate to as much as $6 for a pair of jeans (there are different calculation models out there),” he says. “But it takes about 1.25 lbs of fiber to make a combed yarn, so that 50-cent increase already translates into 62.5 cents in yarn. In every process step there is also a waste factor, so it takes about 1.2 times more fabric than what finally ends up in the garment. It shows how inflation starts to increase long before the fiber makes it to the consumer.”
The Threat from Other Natural Fibers
The cotton industry is well aware that these prices are threatening its already-dwindling market share versus synthetics (more on that later). But could we see changes dramatic enough to relegate cotton to “specialty fiber” status, like wool or silk?
Unlikely, Schindler says, although there is the risk that consumption of cotton in nominal volumes might decrease in the future if prices don’t moderate.
Bieri concurs, asserting that it’s unlikely cotton could fall so far. “But cotton will certainly become a more valuable fiber, and the lower end of the market will need to rethink whether this particular raw material can be used for certain ‘super cheap’ markets, such as promotional t-shirts.”
He adds that cotton will remain the fiber of choice for jeans products, but rather than seeing $9.99 jeans on the shelves, consumers will have to fork out at least $20 per pair. “That might not be a big deal in Europe because most jeans over there sell at the $100 level or above,” Bieri says. “So cotton won’t become a ‘luxury’ fiber along the lines of silk, but it is a fiber that is being treated with more respect.”
Intra-cotton competition is also something that gets a lot of press, with terms like “organic” and “Fairtrade” grabbing headlines. But with demand rising in every sense – not only is cotton tops in consumer demand, but the number of consumers worldwide continues to grow – the decrease in yields and additional costs pose significant barriers.
“Organic/Fairtrade and other cotton initiatives are gaining ground, but the critical mass of consumers are still not willing to pay a premium for them,” says Bashir Ali Mohammad, ITMF president and chairman of Pakistan’s Gul Ahmed Group.
“Demand for organic/Fairtrade cotton is already growing strongly, but its share of total cotton consumption has only increased in the past few years from about 0.5% to just over 1%,” Schindler says. “Some consumers are increasingly willing to pay a premium for organic/fair trade cotton, but it will most probably not reach any significant market share.”
Cost will continue to be the biggest hurdle for these subtypes of cotton, Chen says. “Organic cotton, as a farm product, does not provide economical justification to farmers for increasing production. The additional labor and input costs do not proportionally translate into higher prices for organic cotton. Consequently, global organic cotton production is unlikely to increase significantly.”
Conventional cotton’s achievements in reducing its environmental footprint are lessening the appeal of other cottons as well, he adds: “From an environmental protection standpoint, the more significant achievements in reducing cotton’s environmental impact have been advances in farming technology. Improved water usage and advances in fertilizer/insecticide technology are also reducing cotton’s effect on the environment.”
The Arch-Enemy: Synthetics
Many new fiber types have been introduced in the past few years and a lot more will be coming. That puts no small amount of pressure on mill owners because it adds a level of uncertainty about what to buy when equipment needs to be replaced and when new installations are planned.
There are basic types of machines that can handle both cotton and MMFs, but the accessories are different. Also, when a machine is designed to handle both cotton and MMFs, it usually doesn’t achieve maximum production or quality for either one. As a result, spinners who go for flexibility often must compromise on efficiency and, to some degree, quality.
In addition, both the cotton and synthetics industries are working hard to adopt and incorporate the most appealing traits of their rival, so the traditional assumptions of each fiber’s characteristics are beginning to lose their validity and usefulness.
The biggest example of this trend comes from Baltimore, Maryland, where performance apparel giant Under Armour recently announced that it will debut a line of cotton sportswear that integrates some of the best characteristics of synthetic fibers – namely, the ability to wick away sweat (see page 28). The shirts also dry five times faster than 100% cotton shirts.
As usual, one of the great unknowns is how China will react to the cotton/synthetics battle. In the current market environment, the news isn’t great for cotton, according to Chen.
“Given the size of the domestic crop plus already-contracted imports, China’s cotton supply is currently estimated to fall short of demand by about 1 million tonnes,” he says. “Whether this shortfall in supply will be filled by man-made fiber or cotton depends mainly on two factors: the price differential between MMF and cotton, and whether there is sufficient excess MMF production capacity. Current cotton price levels are roughly double that of polyester, creating an incentive to increase the percentage of MMF in yarn blends. Moreover, China has a large polyester production capacity and should be able to increase production by 1 million tonnes without much effort. Given these considerations, the shortfall in supply is more likely to be filled by man-made fiber than further cotton imports.”
Cotton’s greatest strength is, and will continue to be, consumer demand. Money talks, and what consumers choose to spend it on will determine the white fiber’s ultimate fate. To that end, some associations have turned demand creation into an art form, not only advertising cotton’s benefits directly to consumers but also promoting its use with fashion designers (see page 24). As long as consumers prefer the look and feel of cotton, and are willing to pay a little more for it, cotton should remain the king of textiles.
GET THE NEWSLETTER TODAY!
