Demand Will Drive the Cotton and Textiles Sectors
September 14, 2022 Given the ongoing inflation around the world, the consumer is the king, and demand will drive the cotton and textile sectors.
Cotton will be in tight supply due to the drought in West Texas, unexpected floods in Pakistan, and other factors. The textile sector has focused heavily on the supply side of the equation. However, it is the demand of end products by consumers which will drive the textiles industry.
The ongoing inflation with high consumer price index values in textile-importing countries like the United State, European Union, and the United Kingdom indicate the importance of demand as a determinant.
This year, the cotton price has been highly volatile, predominantly due to tight supply.
The above graph shows the volatility in the price of MCU-5 cotton per candy (356 Kgs) from December 2021 to September 2022. While the price peaked in May 2022, it has started moderating due to inflation fueled by the Russian invasion of Ukraine, higher fuel prices, and slowing in consumption of non-essentials.
I have used the price situation of MCU-5 cotton, which is spun into fine counts used in home textiles, as these textiles were in demand during the COVID-19 timeframe when the demand aggregate was peaking. The cotton price situation since May 2022 shows that the demand for textiles is moderating, due to high prices for essential products like groceries.
The Sept. 13 Consumer Price Index number released by the United States’ Bureau of Labor Statistics showed an increase of 8.3% over last year, indicating that inflation is still high. This will likely force the U.S. Federal Reserve Bank to raise the interest rate to bring inflation under control. Higher interest rates will strengthen the U.S., which will, in turn, affect the cost of imported goods traded in dollars.
Inflation in the United Kingdom is high at 9.9%, which will determine the buying choices of consumers. The macroeconomic situation and the ongoing war between Russia and Ukraine will also dampen global consumer confidence and will likely influence the purchase of non-essential items.
“Normally during the present times with the arrival of the festive season in India, we see high demand for yarns,” states Velmurugan Shanmugam, General Manager of Jayalakshmi Textiles in Aruppukkottai, India. “But the demand is not there.”
In a June 25 meeting hosted by the Textile Association-South India Unit in Coimbatore and attended by about 720 people from the textile sector, I articulated the importance of analyzing the holistic picture of supply and demand, plus macroeconomic and geo-political scenarios, when planning ahead for the textile sector.
“If we see demand moderation, there is a potential for the cotton market to move down despite tight supply,” states Shawn Wade, Director of Policy Analysis and Research of Plains Cotton Growers, Inc., in Lubbock, TX.
Given the high inflationary situation we now face, stressful situations in the EU and the United Kingdom due to high energy prices and the ongoing war between Ukraine and Russia, it will be in the best interest of the textile sector to plan for moderated demand over the next few months.
Demand for textiles will determine the price situation of raw materials while we have a tight supply of cotton. Planning by the industry should consider demand as well as the availability of resources.
Caveat Emptor et Venditor!
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