By Sourcing Journal
This article was published in Sourcing Journal May 14, 2021. We're sharing because it dives into trends and forecasts related to fiber and fabric demand. It touches on the role Covid-19 has played in driving that demand, plus the U.S.-China trade relationship.
Raw material prices are on the rise as demand surges, and the effects are ricocheting down the supply chain.
Yarn and fiber makers are making adjustments, while brands are getting ready to hike or, already have raised, prices to protect their bottom lines.
All benchmark cotton prices increased over the past month. Cotton Incorporated noted in its monthly analysis that since early March, the July New York ICE futures contract rose to above 90 cents per pound from 78 cents. Cotton Inc.’s report released on Thursday said in the latest trading, prices have been near 88 cents per pound.
The Cotlook A Index of average global spot prices increased to 95 cents per pound in early May from levels near 85 cents in early April. The U.S. Department of Agriculture (USDA) reported that U.S. spot cotton averaged 84.03 cents per pound for the week ended May 6. That was down from 84.92 cents the prior week, but up from 50.02 cents a year earlier.
Cotton Inc. said while stock levels and stocks-to-use ratios are expected to decrease in the upcoming crop year, the early USDA outlook suggests that supply will remain elevated.
“Even with ample supply in the current crop year, prices have been able to manage consistent increases,” the report said. “The divergence between supply and demand figures and prices makes price forecasts based on market fundamentals a challenge. A factor that appears correlated with price movement has been the evolution of the U.S.-China trade relationship.”
Despite Covid, the U.S. is projected to export the third-highest volume on record, 16.3 million bales, during the 2020-21 crop year. With shipments to most other markets lower, this has been driven by business with China. Cotton Inc. said the Phase One deal suggests that China will continue to increase purchases of U.S. agricultural goods in the 2021 calendar year, but it is unknown if an extension or a new agreement will be reached for 2022.
Cellulosic fiber manufacturer Lenzing, in reporting that revenue in the first quarter ended March 31 rose 4.9 percent to $587.39 million, mainly attributed the strong increase to demand from China and the resulting higher viscose prices.
The prices for standard viscose continued their positive momentum from the end of 2020 into 2021, the company said, up 33.8 percent from the beginning of the year. Price increases in the dissolving wood pulp market supported the standard viscose price development. The prices for wood-based specialty fibers, which also developed much more stably in the past quarters, benefited from this development as well.
“In an environment of growing demand, this increase is attributable to a shortage in the market, which was caused, among other things, by low inventory levels and low local production in China, and, at times, low imports due to bottlenecks in global logistics,” Lenzing said.
In polyester, the U.S. Bureau of Labor Statistics (BLS) reported in its Producer Price Index that synthetic fiber prices rose 6.1 percent in April compared to March and were up 9.6 percent from a year earlier.
Unifi Inc., a manufacturer of recycled and traditional polyester and nylon yarns, in reporting fiscal third quarter financial results, said it expects the current inflationary pressures from raw material fluctuations to be mostly offset by selling price adjustments.
The company expects adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) in the range of $12 million to $14 million for the fiscal year. This range includes recent global raw material cost increases that will adversely impact gross profit due to the inherent lag in response to selling price adjustments.
Australian wool prices trended downward for the first week of May, Australian Wool Innovation (AWI) reported. The merino fleece sector registered the largest declines of up to 47 cents, AWI noted.
The benchmark Eastern Market Indicator (EMI) finished the week 2.6 percent lower in dollar terms, to close at $10.19 per kilogram.
Brands are also feeling the impact of rising costs. Wolverine CEO Blake Kreuger said he expects the company will make “selective” product cost increases in the back half of 2021 due to the rising supply chain and logistics costs, as well as growing costs of rubber, cotton, leather and other materials.
“If we have to, we’re going to take some selective price increases, we frankly think that the consumer right now is expecting it,” Kreuger said. “There wasn’t a lot of pushback to the industry price increases that were pushed through when we had directly tied to tariffs of the last 18 months to two years. So, we think the consumer is poised to expect some product price increases.”
Delta Galil CEO Isaac Dabah said from a manufacturing standpoint, “fabric prices are rising modestly, particularly in the denim category, which relies on cotton-based fabrics.”
At the far end of the supply chain, retail apparel prices rose a seasonally adjusted 0.3 percent in April, after dipping the previous two months, and were an unadjusted 1.9 percent higher than a year earlier, BLS reported in its Consumer Price Index (CPI).
Prices were lifted by a 1.3 percent increase in men’s apparel last month, led by a 2.3 percent increase in the men’s pants and shorts category.