COTTON’S OUTLOOK: HIGH DEMAND, TIGHT SUPPLY, READY MILLS
Byline: Michael McNamara
NEW YORK — The global cotton crunch is coming, but most mills say they are braced for it.
While worldwide cotton supplies continue to tighten, primarily due to high demand, shortages and poor crops from key cotton-producing countries outside the U.S., domestic mills said that by buying cotton early, they will have ample supplies to get them through this cotton season, which ends in mid-summer.
As reported, the Agriculture Department Thursday released an upward revision of cotton exports and domestic mill consumption of the fiber. The USDA said the increase in demand for U.S. cotton, rising consumption and the global shortage due to inadequate crops in China, Pakistan and India will exhaust the nation’s reserve to a one-month supply.
That reserve, or ending stock, is what most mills depend on to carry them through August, when the cotton harvest begins.
Many mill executives said the USDA report wasn’t really news to them, that they had been planning for a summer shortage, despite this year’s record domestic crop, which is expected to hit 19.7 million bales.
“We’ve been aware of the situation and have taken the appropriate course of action,” said Arthur Wiener, chairman and chief executive officer of Galey & Lord. Declining to cite his firm’s specific strategy, he asserted: “We’ve known about this for some time. The fact that there will be a shortage really isn’t news to us.”
Kevin Federico, president of Cranston Print Works Co.’s apparel fabrics division, said, “We have put ourselves in a position so that there will not be a significant impact. We have a balanced, global sourcing for cotton. We have also anticipated pricing increases, and we are trying to offer customers continuity with pricing.”
Along with the shortages, the price of cotton fiber has escalated, going from 71.5 cents a pound, mill delivered, a year ago to 95.2 cents last month. This month, cotton futures have been hitting over $1.
Most mills said even though they will have enough cotton to produce their fabrics, they won’t be able to pass along most of the price increase to their customers. “We were surprised at the offshore demand for cotton, and obviously that’s a primary reason for the shortages,” said Bob Kaplan, president of Greenwood Mills’ denim division. “We still cannot pass costs along as much as we’d like, and that makes things very challenging.”
Kaplan wouldn’t say how much he was able to pass along.
“Even though supplies are tight, we’ve been assured of adequate supplies,” he added.
Despite the rising cost of cotton, most mills said they are not looking to move away from the fiber. Cotton, they said, is what consumers are demanding.
Burlington Industries, one of those mills, is not planning to shift blend levels of fibers.
“Cotton prices have increased tremendously, and obviously we’re concerned about that,” said George Henderson 3rd, Burlington’s president and chief executive officer. “We are a producer of value-added products, however, and demand for our fabrics isn’t driven solely by price. “If 100 percent cotton is what adds value to a product category — and our denim and knitted fabrics divisions are good examples — then that’s what we’re going to provide,” Henderson said.
Guilford Mills, a leading producer of 100 percent cotton and cotton and Lycra spandex, is another company that said it’s committed to cotton.
“The reason for us to exist is not to be in the commodity business,” said Alfred Greenblatt, president of Guilford’s home fashions, apparel and industrial business units. “We don’t want to slug it out on price, as we have equipment for specialty type fabrics. We feel we have value-added cotton products, and we are not going to leave them.
“The key is to make commitments in advance,” Greenblatt said. “We’ve locked in on prices already.”
Still, some mills said while they are not looking to shift from cotton imminently, they are at least thinking about what steps to take should cotton prices continue to rise.
“We have to see if these increases are sustained,” said Samson Bitensky, chairman of Fab Industries, a knitter here. “Sometimes, these things tend to straighten out, and if it does, it won’t be a big deal.
“Nonetheless, if prices continue to climb for cotton, we may think about other things,” Bitensky said.
The rising price of cotton has also stirred some debate between cotton and polyester interests on marketing strategies. In the last year, polyester has risen from about 70 cents a pound to nearly 90 cents.
Some executives said if the polyester producers had held back on price increases — or raised prices at smaller increments — polyester could have gained a point or two in market share.
“Frankly, coming from a marketing background, I’m surprised that the man-made fiber producers didn’t hold back a little bit on their price increases and take the opportunity to pick up significant market gains,” said J. Nicholas Hahn, president and chief executive officer of Cotton Incorporated. “As cotton began to move up in price, they moved up right behind.
“I understand that their raw materials have experienced significant run-ups,” added Hahn, “but I think by not holding back just a little bit, the man-made fiber producers missed a golden opportunity to change some blend levels.”
“They’ve got to do what they’ve got to do, but the polyester guys weren’t that smart,” said one mill executive, requesting anonymity. “Sometimes you have to make a little less money to make a bigger impact in the market in the long run.”
Jim Casey, president of the fibers division of Wellman Inc., disagrees. He said run-ups in raw materials forced his firm to raise prices at the levels it did.
“Petrochemicals have not enjoyed healthy margins in some time,” Casey said. “In fact, our response to escalating petrochemicals prices is much the same as the cotton industry’s response to failing cotton crops worldwide.”
Richard Angiullo, vice president and general manager of DuPont’s Dacron polyester business, noted, “Today’s situation is unprecedented. The increase in ingredient prices comes at a time of dramatic increases in demand and has created both an opportunity and a necessity to raise prices and regain some of the margin that has eroded over the years.”