There shouldn’t be any complaints coming from apparel manufacturers about the price of raw materials. The costs of yarns and fabrics made from major ingredients such as cotton, polyester, wool and cellulosics are at cyclical lows and show no signs of climbing anytime soon.
The year-end price of a pound of cotton was 60.52 cents compared with 81.01 cents a year earlier and nearly a quarter of what it was in March 2011, when it reached an historic peak of more than $2.
Cotton Inc.’s December Economic Letter, a monthly analysis of market conditions, noted that over the last 10 years, there have been three instances when cotton prices declined more than 20 cents a pound in a six-month period: following the onset of the financial crisis in 2008-09, in the months after a peak was marked in cotton prices in 2010-11, and in the current market, with prices having fallen about 30 percent since March.
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“After each of these decreases in cotton prices, there was a decrease in average import prices,” Cotton Inc. said. “Decreases in import prices could be observed within three months of the downturns in fiber prices. However, examination of the correlation structure between fiber prices and cotton-dominant import prices reveals that the strongest statistical relationship between the timing of the change in fiber prices and the change in apparel import prices is seven months. This suggests that even though import prices have already started to decline, the full impact of the recent decrease in cotton prices may be completely transmitted through import prices late in the spring of 2015.”
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Average import prices for cotton-dominant apparel have declined in the last five months through October to $3.38, the lowest value since April 2011. December’s Consumer Price Index showed retail apparel prices fell 1.1 percent in November.
Over the last several years, the Chinese government was making large purchases through its reserve system, shifting global import demand higher as it allowed mills to fill orders with a higher proportion of imports. Strong Chinese import demand, along with the persistent drought in western Texas that inhibited stocks from accumulating in the U.S., held exportable stocks at low levels.
In 2014-15, the situation is reversing itself. Easing drought conditions in western Texas have enabled a U.S. crop that is forecast to be 25 percent larger than last year, according to the U.S. Department of Agriculture. At the same time, China is pulling back on imports — in October they were the lowest since early 2009 and were down 42 percent year-over-year.
“If quota is restricted as outlined by the Chinese government (that only 4.1 million bales of quota will be issued in 2015), similar year-over-year reductions could be expected in future months,” said Cotton Inc. “The corresponding pullback in Chinese imports could be expected to affect exporting countries differently.”
For example, U.S. cotton exports decreased sharply last crop year, to only 2.7 million bales in 2013-14 from an average of 6.1 million bales from 2011 to 2013. The reduction in U.S. shipments can be explained through the combined effects of a small U.S. harvest and lower Chinese demand.
A steep decline in gasoline prices, along with an historic relationship between cotton and polyester prices, has helped keep prices of the man-made fiber down. Prices for U.S. polyester staple fiber averaged 93 cents a pound last month versus $1.05 a year ago, while prices for polyester filament are at about $1.05 a pound from $1.15 at the end of 2013.
Crude oil prices have been nearly halved in the past year, to $54.73 a barrel from $100.32, and experts have noted that a delayed effect is likely to occur to drive polyester fiber down further in coming months. That comes as several companies in the U.S. are adding capacity. DAK Americas is increasing staple production by 24,000 tons in two stages at its Cooper River site in Charleston, S.C., while Parkdale Mills is taking over two spinning mills from Fruit of the Loom and upgrading them to increase volume.
Gildan Activewear is investing in yarn-spinning operations in North Carolina, and Unifi Inc., in Greensboro, N.C., has expanded its Repreve line of polyester yarns made from recycled plastic.
Roger Berrier, president and chief operating officer of Unifi, during a conference call discussing the Greensboro, N.C.-based company’s first-quarter earnings, said, “Prices for polyester raw materials are decreasing in the December 2014 quarter based on the recent decline in crude oil. We will continue to offer our customers pricing stability throughout these shifts in raw materials, which is something that has become valuable to them, given the length of time that it takes for them to go from yarn to finished goods.”
The Lenzing Group, one of the world’s largest manufacturers of cellulose fibers, from classic viscose to Modal and Tencel, said in November when reporting third-quarter earnings that the decline in average fiber selling prices and the high volatility in the fiber market continue to negatively impact the company’s business operations. Average fiber selling prices of the Lenzing Group fell to 1.55 euros, or $1.89, a kilogram, from 1.73 euros, or $2.11 a kilogram, in the comparative first nine months of 2013. Fiber sales volume rose 7 percent year-over-year to 706,900 tons in the period.
Wool prices have also dipped over the last year, finishing 2014 at $4.05 a pound compared with $4.51 cents a pound a year earlier, according to the U.S. DOA. Australian Wool Innovation said at last month’s final Australian wool auctions for 2014 that there was a negative tone based on poor market conditions, although there were encouraging signs, notably a positive approach by overseas users to merino fleece. Demand, and therefore competition and prices, appeared to be stronger in this area as exporters reported stronger bookings for 2015.
