Export Prices Steady Despite Rising Cotton Costs
In recent weeks, spot and futures cotton prices have been rising. However, price increases for finished goods are being held back by fierce competition and a weak EU marketplace.
The price of cotton has been on the rise for the past few weeks. Although China’s suppliers of yarns and fabrics are quick to adjust their prices, downstream producers such as home textiles, bags, and garments find it challenging to maintain stable prices.
The cost of cotton, especially for fabrics, increased between 3 and 5% in August compared to three months ago. Nanjing Jiefeng Textile Co. Ltd, a yarn spinner, has already adjusted its quotes to reflect spot and futures prices on the domestic market. The same has been done by fabric mills. This usually takes between three and four months before such cost increases are reflected in finished goods prices. Exporters will have to pay more for this year’s increased competition and price sensitivity from overseas buyers.
Furthermore, the demand is decreasing, and suppliers don’t want to make matters worse by raising prices. EU buyers have been canceling or placing smaller orders due to the debt crisis. Shenzhen Danyal Clothes Co. Ltd, an apparel maker, said that exports to Germany have dropped by around 20% in the past six months.
Ningbo Veken Elite Group Co. Ltd expects that its EU shipments of textiles and garments will fall by 50 percent over the next half-year. To boost its earnings for the year, the company is now focusing on domestic sales.
Companies are taking various steps to reduce costs. This includes strategic placement of patterns and careful cutting of the pieces to maximize a bolt. Guangzhou Textiles Holdings Ltd stopped using high-end fabrics in its apparel designs.
Futures and spot markets
China’s high demand and government intervention have kept local cotton prices up. Beijing will likely take measures to ensure that prices remain high for farmers so they can sell their cotton at reasonable rates, with the harvest season set to begin in September.
August 10, domestic spot cotton spot prices were 18,142 Yuan ($2,660 per ton), up 11 percent over April 23 quotes.
The central government is taking steps to reduce the gap between demand and production and prevent prices from rising too quickly. One of these steps is to approve additional import limits for the year. In addition to the 1.89 million tonnes previously granted, the National Development and Reform Committee approved an additional 800,000 tons and 910,000 tons for purchase in May and June. Beijing also released 600,000 tonnes from its cotton reserve in June. On Aug. 10, yarn makers began bidding for the stockpiled fiber.
China Cotton Association hopes these measures will be sufficient to satisfy the demand of textile manufacturers and stabilize prices.
Due to several events, the August cooling in cotton prices in international markets was a result.
The ban on cotton exports that India had placed since April was lifted by the Indian government in July. The 15 percent tariff Pakistan had placed on cotton yarn exports was also stolen in July. A report by the United States Department of Agriculture, June 30, showed that the cotton planted area in 2010/2011 is expected to be 10.9 million acres. This is an increase of 3.9 percent over March’s estimates.
Fears that the EU might slip into a double-dip recession have slowed demand, which in turn led to lower futures prices.
On Aug. 10, NYBOT prices for December and October cotton contracts were at 84.38 and 81.1 cents per pound, respectively. On April 20, the NYBOT prices for October and December cotton contracts were 84.38 and 81.13 cents per pound, respectively. However, prices rose due to strong manufacturing growth in China and a weakening dollar. Contracts for October and December were settled at 90.87 cents per pound as of September 2, 2010.
Aimee Ocampo, the managing editor of Global Sources, wrote this article initially for the company. Global Sources is a major business-to-business media firm and a key facilitator of trade with China suppliers and manufacturers. We provide essential sourcing information to volume purchasers through our magazines and trade shows, as well as industry research.