As prices rise, demand ebbs
December 1, 2003-- Home Textiles Today,
Although cotton prices have surged this year, threats of further increases are now being tempered.
The price surge, according to economists specializing in global cotton supply and demand, is attributable primarily to an unexpected increase in imports by China.
The immediate result was a jump in this year's prices and an anticipated increase in 2004. But "with retail demand for cotton in the United States not too strong," according to Peter McGrath, president of JCPenney Purchasing Corp., "future demand may not be as high as people expect."
The while U.S. demand for extra long staple cotton has also slumped, overseas consumption has grown astronomically, said Jesse Curlee, president of the Supima Association of America. Pakistan's consumption jumped nearly 73 percent this year and India's 215 percent. China alone gobbled up 63,000 bales this year after tapping just 9,000 bales the previous year.
And while global demand is currently outstripping the overall cotton supply, again, largely because of China, McGrath noted that prices now are 80 cents to 82 cents, with futures projected at 68 cents to 70 cents by next fall.
Similarly, Carlos Valderamma, head economist for the International Cotton Advisory Committee (ICAC) said, "It was a struggle with higher prices through October, but prices now are in a correction mode at 80 cents on the A index, then to 73 1/2 cents today." And the average price for early December is expected to be 66 cents, he explained.
According to a special market report issued by Cotton Inc. last month, China is the world's largest cotton producer, and at the same time is the world's largest cotton consumer. The report added that Chinese mills consume more than twice the amount consumed by mills in India — the second largest user.
The report added that in October the United States Department of Agriculture (USDA) estimated that China would need 4.3 million bales of cotton, its largest import position in more than a decade.
Despite the projected increases, Penney's McGrath, as well as a number of decorative fabrics suppliers with large percentages of cotton in their products are resisting increases.
Said McGrath, "We are in negotiations for orders on hand. We can't afford to raise prices. And we see contracts in the spring coming in at reasonable prices."
At the decorative fabric level, Jim Richman, president of Richloom said, "We're going to wait. It's coming down a bit, and sometimes it's smarter to wait. And it seems the Chinese crop is better than expected."
Discussing the amount in increases being asked, Mark Aizawa, president of Chris Stone remarked, "We're hearing 30 to 40 percent for the first quarter domestically and 20 to 30 percent for off-shore."
Noting that quality is not an issue with its off-shore suppliers, Aizawa added that the big issue is about where to weave proprietary constructions. "Will they stay proprietary?"
For Larry Liebenow, president of Quaker the issue is far broader. "It's an unfortunate thing that we [U.S.] have not liberalized our policy regarding cotton. It is one of the most heavily subsidized agricultural crops in this country."
For Quaker, cotton is not a major fiber, "but chemicals used in making fabrics are being affected by the continuing high prices of crude oil and natural gas. We have to work on ways to change those formulations."
And for the users of cotton, ICAC's Valderamma noted that synthetics could be substituted for cotton if prices continued to escalate. "You can recalibrate the equipment in two days."
In line with this observation, Jeff Silberman, executive director of the International Forum for Cotton Promotion (IFCP) and assistant chairperson, Textile Development and Marketing at FIT remarked, "Chemical fibers are the main competition to cotton, not each country's cotton production." IFCP is forming programs to increase the use of cotton in each country, "and we're lobbying for fiber label laws in other countries to identify products with cotton. It's a world-wide effort."
Summing up the situation at present, Leslie Meyer, economist, Economic Research Service, USDA, noted, "In general, cotton prices have moved higher recently and of course, suppliers can expect an increase in their import costs. But it will be a small share of the total cost, so that will likely affect pricing only a small amount."
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