The fiber world is flat, at best. And that means apparel prices aren’t likely to rise anytime soon.
As fashion retailers and manufacturers seek answers for why consumers aren’t buying apparel like they used to, they now know at least one thing for certain: price isn’t the reason. The U.S. Bureau of Labor Statistics reported this month that consumer apparel prices in May were down 0.5 percent compared to a year earlier.
The slide in apparel prices in May continued what Chris. G. Christopher Jr., U.S. economist at IHS Global Insight, said is a long-term deflationary retail price pattern in the sector. While flat fiber prices could give a “little wiggle room” to retailers in their apparel pricing, Christopher said, other economists say the ongoing fall in prices is more a result of the competitive environment and consumer buying habits than things like fiber prices and the cost of other goods, although that is a factor.
Christopher said an excess of inventory from the warmer winter also contributed to heavy discounting and put additional pressure on clothing prices at retail this spring. IHS estimated that clothing prices, based on consumer spending and consumption, fell 1.2 percent in 2015 compared to 2014, and expects prices to be “below water” in 2016, or in the negative by 0.2 percent.
Christopher also noted that the core Consumer Price Index, which excluded volatile energy and food sectors, has been in “negative territory” since the third quarter of 2013, on a quarterly basis.
All of it adds up to a tough outlook for retailers for the rest of the year. Moody’s Investor Service last week downgraded its retail sales growth projection for this year to a range of 2 percent to 3 percent from the previous range of 4 percent to 5 percent. The analysts also lowered their outlook to stable from positive. Apparel retailers and department stores are expected to be hit the hardest.
But while retailers are suffering with slack consumer demand, and fiber producers are battling depressed prices, at least some firms appear to be benefiting: fabric and apparel manufacturers.
International Textile Group, which operates Cone Denim and Burlington Worldwide, said in May that gross profit in the three months was up 33 percent to $24.2 million, crediting lower raw material and energy costs as key contributing factors. Gildan Activewear, in posting a 17 percent increase in first-quarter earnings to $63.2 million, said the gains were driven by its investment in vertical manufacturing and low raw material and input costs. Levi Strauss & Co. said in reporting first-quarter results that its gross profit margin jumped to 53 percent in the quarter from 50.9 percent in the prior year, “primarily due to lower negotiated product costs and streamlined supply chain operations.”
The pattern of overall apparel fiber prices generally follows the path of cotton, which held steady in the first half with some slight fluctuations.
While cotton might have lost some market share in recent years to synthetics — especially since its historic price spike in 2012, when it was selling for more than $2 a pound — it’s still the key commodity and price indicator. According to the U.S. Department of Agricultural, spot cotton prices averaged 62.87 cents a pound for the week ended June 23. The weekly average was up from 61.96 cents on June 16 and 62.47 cents from a year earlier.
The global conglomerate A Index has increased to 75 cents a pound from levels near 70 cents a pound a month ago. Current values for the A Index are also the highest since last summer, but analysts see some flattening or weakening on the horizon.
Cotton Incorporated’s monthly outlook for June said with Chinese imports expected to hold near their recent low levels, “this should make it difficult for prices to move much above their current levels.” Cotton Inc. noted that Chinese stocks “remain massive by historic standards and any shift toward historic averages would have to be a multiyear process.”
Current forecasts indicate Chinese ending stocks will be 54.7 million bales and that the stocks-to-use ratio will be 163 percent in the upcoming crop year. Both values are about three times the historic average, emphasizing that a return to levels near historic averages will be a lengthy process.
This month’s USDA report featured decreases to world production and consumption estimates for the 2015-16 and 2016-17 crop years. The largest revisions were made to harvest figures. The 2015-16 production estimate was lowered by 1.4 million bales to 98.1 million. This marks the first time since 2003-04 that the global crop was below 100 million bales. Virtually all of the changes to global production numbers were a result of reductions to estimates for China. The figure for China’s 2015-16 crop decreased 1.3 million bales to 22.5 million bales. Expectations for China’s 2016-17 harvest were lowered by 1.0 million bales to 21.5 million bales.
American pima cotton prices have also been holding steady at $1.25 a pound the last two months, even as export sales have strengthened. According to Supima, the marketing arm of U.S. pima cotton growers, sales through May 26 place export sales for the year at 513,500 bales, with 10 more reporting weeks remaining for the current crop year. Additionally, export shipments already stand at 426,500 bales versus the year-end final of 444,600 bales last year.
China continues to be the biggest importer of Supima cotton, despite the extensive subsidization of its domestic cotton production. These subsidies have resulted in more than a doubling of China’s domestic production, with another increase expected again this year, which has affected global supply balances that have impacted market prices and kept them artificially low, Supima said in its June monthly report.
Many other key importing countries have increased their imports of American pima, including India, Pakistan, Turkey and Peru.
Polyester prices have also been generally flat in recent months, with current prices averaging 74 cents a pound for filament fibers and staple fiber prices at around 95 cents a pound, according to market sources.
The U.S. Bureau of Labor Statistics Synthetic Producer Price Index stood at 119.7 for May, up from 119 six months ago.
Industry experts noted that while polyester fibers technology has helped make yarns and fabrics more aesthetically pleasing and able to be blended with other fibers more effectively, prices have been held down by competitive forces and low costs of downstream inputs such as petroleum.
Oil prices have risen somewhat of late, but prices are still at low periodic levels. A barrel of light sweet crude oil was trading at $49.88 last week compared to $36.91 six months ago, but well below levels of a few years ago.
This was put in perspective by Stefan Doboczky, chief executive officer of cellulosic fiber giant Lenzing, who said in May in reporting first-quarter results, “The global fiber markets’ high cotton inventories and the ongoing low oil prices continue to put downward pressure on cotton and polyester selling prices. [But] a balance between supply and demand should prevail in the market segment of wood-based cellulose fibers.”
Lenzing, which makes the wood-pulp based fibers Tencel, modal and viscose, said market prices for viscose fibers significantly recovered in 2015, rising by an annual average of about 5 percent, whereas cotton and polyester selling prices each dropped by more than 20 percent on average.
Wool has shown some pricing power after a flat year in 2015. According to the USDA’s National Wool Review, wool was trading at $4.39 a pound for the week ended June 24, compared to $4.05 at the end of 2015.
“A majority of core samples this year have reflected higher yields across the trading regions, which indicates it was a good overall season for growing wool,” USDA said.