By  on December 28, 2010

WASHINGTON — High fiber prices are expected to create some upheaval throughout the supply chain in the coming months.

Rising costs of raw materials deep in the supply chain haven’t yet made their way through to retail apparel prices, but that can’t continue indefinitely, experts said. Volatile cotton prices in the last year have soared to record highs, wool prices are higher than they have been in years and synthetic fiber prices, while not seeing upward pressure anywhere near the natural fiber industries, are also elevated.

“Once these higher fiber prices filter through the supply chain, it’s going to be painful,” said Gary Raines, vice president of economics and analysis with FCStone Fibers & Textiles. “Who’s going to crack first? Will consumers willingly pay higher year-over-year prices for apparel? I’m not sure. 2011 is shaping up to be unlike any year we’ve seen. There is a major disjoint between retail trends and what’s happening on the fiber side.”

Prices will eventually come down from current elevated levels, but it could take some time and they won’t fall far enough to avoid creating reverberations in the apparel industry, Raines said, impacting profits all along the supply chain.

“The assumption is they’re going to have to pass some of this on at the retail level; the question is how much,” said Nate Herman, vice president of international trade for the American Apparel & Footwear Association. “It won’t be the full amount of the additional costs people are paying in the supply chain.”

Retail prices for apparel are likely to register increases in the low- to midsingle digits next summer or fall given the production schedule of apparel, Herman said. Pushing costs back up the supply chain is trickier now because of a consolidation of the sourcing base following the economic crisis, when many factories were forced to close.

Cotton prices were driven higher this year by a supply-and-demand ratio that is wildly out of whack, experts said. A surprise increase in demand for cotton followed the steep drop-off precipitated by the global economic crisis. Combining that with already high demand from China helped create a cotton shortfall. The supply side outlook was further impacted by inclement weather in some of the major cotton-producing countries such as China and Pakistan and export policies in India limiting cotton exports earlier this year. In addition, high prices of other commodities like corn and soybeans have stolen acreage from cotton in recent years as farmers shifted to other crops.

“The world supply-and-demand situation remains the tightest in the modern globalized era,” Cotton Incorporated said in its Monthly Economic Letter for December. “Much of the tightness at the world level can be attributed to China.”

India’s export policies were also under scrutiny this year. The country imposed a ban on raw cotton exports last spring in response to pressure from domestic manufacturers, who said they needed relief from high prices. While the outright ban was lifted several weeks later, India continues to eye its export levels.

“This year every bale counts,” said Jon Devine, an economist with Cotton Inc.

Despite high prices, demand for cotton remains so high that four months into the crop year for 2010-2011 almost 100 percent of the projected U.S. crop is already sold, he said.

load comments
blog comments powered by Disqus