After one of the most volatile years in fiber prices in 2011, stability returned to the market in 2012 and the outlook seems steady for 2013, but not without some concerns.
This story first appeared in the December 18, 2012 issue of WWD. Subscribe Today.
Cotton prices are at 68.4 cents a pound today compared with 86.4 cents a year ago, after exceeding $2 a pound in the spring of 2011 following a perfect storm of renewed demand. The recession eased and emerging markets increased usage just as natural disasters such as droughts in Texas and floods in Bangladesh and Pakistan lowered crop yields. This coincided with farmers opting for higher-profit crops to bring supply levels even lower.
Cotton Incorporated’s November economic snapshot noted that while New York futures and aggregate A Index prices were gradually moving lower, Chinese mill-delivered prices described by the China Cotton Index have been slowly rising. Relative to July’s average, the latest values for the CC Index are about 5 percent higher in dollar terms. Cotton Inc. said a likely reason is the government’s purchasing program aimed at keeping minimum guaranteed prices. Since September, more than 10 million bales of Chinese cotton have been bought, representing a significantly faster pace than the same period last year.
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“Given the purchasing program maintains high domestic prices relative to those in other countries, the competitiveness of Chinese spinning mills has been affected and China’s share of world consumption has declined,” Cotton Inc. said.
In this month’s report, the U.S. Department of Agriculture lowered its estimate for Chinese mill use another 500,000 bales. At its current level, Chinese consumption is put at 15.5 million bales, or about 30 percent lower than it was at its peak in 2007-08. The decrease in Chinese consumption lifted the Chinese stocks-to-use ratio to 104 percent. The USDA noted that any value over 100 percent implies that if Chinese consumption in 2013-14 remains at the same level as 2012-13, China will have enough cotton stored in stocks to meet all of its consumption needs, without having to harvest or import any cotton.
With world consumption lower and world production higher, global ending stocks increased 1.2 million bales to 80.3 million. Higher ending stocks and lower consumption lifted the world stocks-to-use to ratio to 75.5 percent from 74 percent, which is the highest estimate on record. While global ending stocks are forecast to set a new record, Cotton Inc. said it is important to consider where much of this cotton is located. At the end of the 2012-13 crop year, China is forecast to hold 46.3 percent of world stocks.
“This is relevant since the vast majority of Chinese stocks is held by the government and can be withheld from the market,” Cotton Inc. said. “Correspondingly, any decision by the Chinese government in relation to the future of the reserve program could be expected to have a major impact on cotton prices around the world. If China decides to sell from reserves and decrease imports, stocks would accumulate in exporting countries and exert downward pressure on prices from exporting countries, [and be reflected in] New York futures and the A Index. If China maintains current policy and continues to absorb cotton through its reserve program, Chinese and world prices could continue to be supported.”
Polyester prices, which are often impacted by cotton usage and price fluctuations as its main fiber competitor, have been stable, as well. Polyester staple prices are at 87 cents a pound today compared with 84 cents a year ago and 99.5 cents at their peak during the cotton crisis in the first half of 2011. Polyester filament is selling at 76 cents a pound compared with 73 cents in December 2011 and a high of 88 cents in April 2011. Analysts suggest that soft demand and lower petroleum prices should keep prices low or stable. A barrel of light, sweet crude oil is at $86.73 compared to $99.53 a year ago.
Roger Berrier, president and chief operating officer of Unifi Inc., a producer of multifilament polyester and nylon yarns based in Greensboro, N.C., said at an investor conference last month that in the last 18 months, “the raw material environment around polyester has been very volatile.” Berrier noted that one of the main ingredients in polyester, paraxylene, has worldwide utilization rates at an all-time high of 88 percent, which “creates a whole supply chain dynamic where this ingredient remains relatively high.” However, he said there is additional capacity expected to be coming online at the end of 2013-2014, “so we anticipate these utilization rates will go back down to…86 or 83 percent, adding, “We do see that will create some stability around the paraxylene component that goes into making polyester.”
Wool prices wound up the year at $5 a pound, the same as they were a year earlier, after peaking in June 2011 at $6.39 a pound. Stuart McCullough, chief executive officer of Australian Wool Innovation, said the outlook for wool prices is stable, with supply and demand in balance. McCullough said the first half of the year was particularly strong, with prices falling off somewhat in the second half.
“The rule of thumb is the Eastern Market Indicator, which, for the first time in two years, went below $10 a kilogram. Now prices are back above $10 a kilogram. We know the supply chain is rather empty in Australia, that is to say there is no excess supply.…Europe is still going through a recession and demand there is very weak. We are confident the U.S. will continue to see modest growth and there is a lot of wool in the stores. The buffer is China. We have an emergence of great affluence in China. We are seeing consumers go out and buy their first wool sweater or wool suit. We think the first quarter of 2013 will see prices slightly above where it’s been.”
Lenzing Inc., which produces cellulosic fibers such Tencel, Modal and viscose, said the average fiber selling price in the first nine months of 2012 was 2 euros, or $2.63, a kilogram, down from 2.25 euros, or $2.96, a kilogram in the prior-year period. Lenzing said the main cause for the price decline was underutilization of production plants operated by many cellulose fiber manufacturers in Asia, as well as the lower cotton price compared with the previous year.
Lenzing said underutilization of production capacities in the fiber industry and the downstream processing chain could continue, leading to further price pressures. However, in the light of its market position for its branded Tencel and Modal lines, Lenzing anticipated a record level of fiber shipment volumes for 2012 of about 800,000 tons.
Nylon filament yarn prices fell 11 percent to $3.96 a kilogram in the year ended Nov. 30 due to sluggish demand, which is expected to continue, according to industry reports.