- Written by Alan Schwartz
We are presently witnessing an unprecedented global crisis with regard to availability and pricing of fabrics that could greatly impact the uniform business and textile industry.
During the economic recession of 2008/2009, the apparel industry suffered. Many yarn suppliers (spinners) to the textile industry could not survive the recession. Spinners provide the service of accumulating raw materials, primarily cotton and polyester, break it down and make thread (yarn). This yarn is then sold to mills where it is woven or knitted into fabrics.
In 2010, other countries began economic recovery faster than the United States. Presently, economies are booming in China, India and Brazil, and the recovery in Western Europe is far ahead of the U.S. As demand for apparel began to increase, and because of all of the spinners that went out of business, there was not enough spinning capacity to deal with the new higher fabric demands. China, anticipating the shortage, signed contracts to buy large amounts of yarn from Pakistan. Orders began to accumulate in Pakistan. They realized they were going to have yarn shortages due to limited capacity. They had already sold a great amount of their yarn to the Chinese. This prompted major price increases in products manufactured in Pakistan.
The Cotton Story
The four main cotton-growing regions making up more than 80% of the world’s cotton production are China, India, the United States, and Pakistan.
China has one annual crop. This year, massive rains in China prevented the machinery that picks the cotton from operating, so they experienced large crop losses. Additionally, China had several earthquakes in cotton growing regions which also contributed to reductions in their harvest.
India, which has had a reasonably good crop this year, harvests cotton at various times throughout the year. The Indian government has a policy that will not allow the export of yarn to other countries until they adequately feed their own domestic consumption. Additionally, Indian exporters are now demanding significantly higher prices because they have availability of product where other places in the world do not.
Farmers in the U.S. had to make a decision eight to 10 months ago, prior to the shortages and price increases, as to what they were going to plant, and they did not plant enough cotton to compensate for future global shortages. The U.S. produces only one cotton crop per year which was harvested at the end of the summer.
Pakistan, with two growing seasons to produce cotton, had a reasonably good season in the spring, but a disaster in the fall due to massive flooding. The estimated loss in the fall was between 25 to 40 percent. All of this comes down to one factor; the law of supply and demand. When demand is high and supply is short, prices will go up.
The Polyester Story
People ask, “Why do prices rise so high when the majority of our fabrics are only 35 or 50 percent cotton?” The answer is simple; cotton and polyester prices tend to rise and fall together. Polyester producers know they can raise their prices in relation to the cotton suppliers and capitalize on the opportunity.
The Future Reality
For the first time in modern history, mills no longer quote advanced pricing on fabrics. From week to week, fabric suppliers do not know what their costs will be. Mills have refused to honor previously placed business, for fear of losing money on the deals. Prices quoted are generally honored for no more than seven days when they used to be honored for months. This is causing panic amongst suppliers and manufacturers who don’t have time to negotiate agreements with consumers before the raw material prices rise again
The economies of India and China are booming. Those governments told their apparel manufacturers that their first priority is domestic consumption – prior to their export businesses. The Chinese government has intervened on behalf of the domestic manufacturers, providing a subsidy for them to control the inflationary aspect of this. The Chinese Government will not put in a subsidy for export because they are taking the position that this is a global situation and the global market should set the price for raw materials.
Over the last 30 years there have been many business cycles for the apparel industry. Prices have risen and fallen, there have been shortages and surpluses. But in recent history there has never been a situation where there were severely limited textile resources with no recovery in sight. This situation cannot be resolved until the next crops come in and you will not see another crop out of the U.S. or China for the next eight to 10 months. This problem will remain with us and, if the world continues to recover at a faster pace than the U.S., the situation may in fact worsen. Unfortunately, there is no guarantee the 2011 crops will come in at a level to bring supply and demand more in line, thus providing relief to price increases.
Alan Schwartz is President of Superior Uniform Group
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