Cotton prices have risen in recent months, while at the same time imports of cotton apparel have lost market to MMF apparel imports

Cotton prices have risen in recent months, while at the same time imports of cotton apparel have lost market to MMF apparel imports

High prices and lower import levels suggest the market, for now at least, is moving away from cotton. Robert Antoshak, managing director at Olah Inc takes a closer look. 

In the early 2000s, cotton traded at relatively low prices of about 50 cents per pound – not particularly profitable for many farmers around the world, but advantageous for mills and brands. As a result, lots of cotton was consumed by the supply chain; so much so, in fact, that cotton's share of the apparel fibre market nearly reached 50%. Today that share is more like 33%. What's happened? 

In 2011, the price of cotton soared to more than US$2 a pound in some countries. Brands panicked as raw material costs rose. Inclement weather and some poor government policies contributed in a rare confluence of forces that created a shortage of cotton in the market. Moreover, synthetic fibre prices followed suit, although not with the same ferocity of cotton as a global glut of polyester capacity helped to mitigate higher prices. So what happened next?

Many brands altered blend levels in their clothing to incorporate more synthetic fibres. 100% cotton steadily gave way to 60/40 blends and, increasingly, tri-blends, which in particular is a growing trend in jeanswear, as stretch has come to dominate the mass market for denim. At the same time, there was a move towards lighter fabrics as athleisure gained momentum in the fashion business. Sportswear evolved into gymwear for everyday use.

Since then synthetic fibres have only solidified their hold on the markets. Cotton lost share and has been struggling to restore market share ever since. But there's more.

It was challenging for brands to pass along higher prices to consumers, particularly when faced with a sudden spike in cotton prices. Higher cotton prices translated into higher yarn and fabric prices; textile mills had little choice but to pass on these increased costs to brands and retailers. Brands agonised about passing these costs to consumers while also fretting over the deterioration in the margins. In short, it was crunch time.

Sourcing people, however, scrambled to find alternatives. Hence the greater use of lower cost synthetics as an alternative to cotton. In time, cotton prices pulled back, but not without leaving a damaging mark on cotton markets.

So what was the aggregate impact of fibre prices on the wholesale cost of garments? It's an interesting question that goes beyond the typical input cost tallies made by sourcing people. Using import trade data, it's possible to measure the effect of fibre prices on wholesale garment prices over time. 

Following is a back-of-the-envelope analysis of fibre prices and end-use demand. US import data helps to outline the trends of those times but is also helpful in seeing where fibre prices today relate to wholesale garment prices. Specifically, we'll focus on the US as it is a major producer of cotton, imports a significant amount of synthetic fibres every year, and consumes lots of apparel.  

First, let's take a look at cotton prices from 2008-2016. A useful measure is the Cotlook A Index of global cotton prices. Note the price spike in 2011 and subsequent easing of prices after that. However, it is also important to note that cotton prices have moved back up in 2017 (more on that later).

Cotton “A” index prices: annual and YTD averages

200820092010201120122013201420152016YTD 04/'16YTD 04/'17
0.7140.6271.041.550.8920.9040.8310.7040.7420.6750.853

Source: Statista

Next, let's compare the cotton prices to average US import prices of synthetic staple fibres. Synthetic fibre prices jumped in 2011 following cotton's lead, only to fall back and are now somewhat lower than cotton, particularly for the average year-to-date price through April 2017.

Cotton vs. synthetic staple fibre prices

  200820092010201120122013201420152016YTD 04/'16YTD 04/'17
Cotton 0.7140.6271.041.550.8920.9040.8310.7040.7420.6750.853
Synthetic staple0.7670.6260.7641.0230.8950.8650.8400.7180.6020.6140.626

Source: US Bureau of the Census, Statista

Then let's compare US imports of cotton apparel to man-made fibre (MMF) apparel measured in both square metre equivalents (as calculated by the US Office of Textiles & Apparel, Department of Commerce) and US dollars. Notice how MMF apparel imports have overtaken cotton apparel imports in measures of both volume and value over time.

US imports of cotton and MMF apparel (US$bn)

200820092010201120122013201420152016
Cotton apparel43.838.943.344.741.842.841.641.438.2
MMF apparel21.519.723.227.629.83234.938.737.9

Source: US Bureau of the Census

US imports of cotton and MMF apparel (SME)

200820092010201120122013201420152016
Cotton apparel13.712.614.312.61212.31212.211.7
MMF apparel8.28.19.810.611.1121314.414.6

Source: US Bureau of the Census

Before the cotton price spike, cotton apparel imports were considerably higher than comparable MMF apparel imports. But once prices jumped, imports of cotton apparel into the US began to drop. So much so, that imports of MMF apparel overtook cotton apparel in the US import market.

Finally, let's compare average wholesale cotton apparel prices to raw cotton prices, along with comparable statistics for synthetics fibres. To make this analysis more interesting, let's add in approximate prices for synthetic fibre prices based on US imports of synthetic staple fibre prices. 

US imports of cotton and MMF apparel

  200820092010201120122013201420152016YTD 04/'16YTD 04/'17
Cotton apparel 3.203.093.023.533.483.493.463.393.253.293.22
MMF apparel2.622.412.372.602.692.662.672.682.592.642.53
Cotton "A" index0.7140.6271.041.550.8920.9040.8310.7040.7420.6750.853
Synthetic staple fibre0.7670.6260.7641.0230.8950.8650.8400.7180.6020.6140.626

Source: US Bureau of the Census, Statista

But what about today? The most recent statistics available track imports through May 2017. Interestingly, some of the old patterns hold true for the first five months of 2017. Cotton prices have risen in recent months, while at the same time imports of cotton apparel have lost market to MMF apparel imports. 

US 2016 vs 2017 YTD imports of apparel (US$bn)

Year to April 2016Year to April 2017
Cotton12.311.8
MMF11.311.5

Source: US Bureau of the Census

US 2016 vs 2017 YTD imports of apparel (SME)

Year to April 2016Year to April 2017
Cotton3.763.68
MMF4.284.55

Source: US Bureau of the Census

In summary, then, imports are sensitive to the cost of raw materials, which by itself is no new revelation. When cotton prices spiked, imports of finished cotton apparel dropped in relation to synthetic apparel imports. Makes sense. The same would be true of synthetic fibre prices, too, only that the overcapacity of polyester as mentioned earlier helped to ease an overall rise in synthetic fibre prices.

Typically, polyester staple prices will track cotton prices. What is most concerning, though, from the cotton perspective is that prices have begun to creep back again, similar to the way prices began to creep back up before 2011. All the while, synthetic fibre prices have remained low, while their share of US imports has continued to grow.

So, does this mean we're building to a repeat of 2011? Not necessarily. There would have to be a catastrophic weather event or some other event significant enough to influence a sizeable chunk of the cotton market for that to happen.

However, the high prices and lower import levels when taken together suggest the market, for now at least, is moving away from cotton. Higher cotton prices, so it seems, will only make matters worse for the cotton industry – while further expanding the synthetic fibre industry's reach in the global market. All of this bears careful watching, as the second half of 2017 unfolds.  

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