The main raw material for garments, the cotton price hit an all-time high in the international markets. According to the New York futures market, the cotton price was $1.06 per pound.
The price has more than doubled over the past 12 months especially since the beginning of 2021. As prices registered a 35% hike over that period.
Substantial rains in India and flooding in Australia and Pakistan have overstretched global cotton supplies this harvest season, pushing up prices.
Recently, a panel recommended the Indian government – the world’s second-largest cotton grower – to keep its export cap at the current 5.5 million bales, further fueling the rally.
Present world demand may continue to lift prices, more so than supply problems.
On top of it, the recent cotton price hike is mainly fueled by China. The largest global cotton consumer increased its imports.
China is now stocking up on a large amount of cotton to meet their future needs, forecasting any possible crisis.
Down the textile supply chain this will have a domino effect on the price of yarn and fabric. And ultimately unsettling apparel shipments.
Impact in the local textile and apparel industry
Recently, Mohammad Ali Khokon, President at Bangladesh Textile Mills Association (BTMA), said to a local media that proforma invoices that they will issue for November to sell yarns might see a 15% hike in prices.
A proforma invoice is an initial bill or invoice used to request payment from the committed buyer for goods or services before they are supplied.
Khokon urged garment exporters to add the extra cost on yarn purchases in mind while negotiating prices with buyers.
While Shahidullah Azim, Vice-President at Bangladesh Garment Manufacturers and Exporters Association (BGMEA), however, told a local media that if global cotton prices increase, yarn prices in the local market should grow at least after three months.
It will not be logical to hike prices before that, otherwise, RMG makers will have to go for imports instead of sourcing domestically, Azim added.
“If RMG makers cannot survive, they [spinners] will not too,” Azim said.
Earlier the RMG entrepreneurs have been scrutinizing the local spinning mills that they have been charging much higher than in the global market.
Although spinners have constantly clarified that they hiked prices in parallel with cotton prices.
In FY21, Bangladesh imported over 8 million bales of cotton. Making the country as the second-biggest cotton importing nation.
Will consumers pay for higher cotton prices?
Some leading fashion brands like Group Inc. and Polo Ralph Lauren Corp. are passing on the higher fiber costs with price increases for consumers this year.
Consumers might have to buy garments with higher price tags in the coming months as the cotton in garments currently in shops was harvested six months ago, when the fiber price less than half the present price.
However, U.S. shoppers are likely to be unwilling to pay sharply higher prices.
Terry Townsend, executive director of the International Cotton Advisory Committee, a Washington-based association that advises the governments of cotton-growing nations said to WSJ, “Clothing prices will not double because of doubling cotton prices. Marketing margins are going to have to be squeezed, somewhat.”