Image; Reuters Berita 24 English - Asian garment makers are being hammered by a near-doubling in benchmark cotton futures to 11-year highs,...
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| Image; Reuters |
Garment producers in Asia, which are among the region's biggest employers, have seen their losses rise, with some smaller firms suspending operations and laying off thousands, jeopardizing the recovery from the pandemic and providing a new problem for authorities already grappling with soaring inflation.
To stay afloat, several yarn and garment manufacturers are substituting synthetic fabric for cotton.
"Our plants are operating at full capacity. But how much will it cost? We're barely generating any money, "Sterling Group, based in Dhaka, provides brands like H&M and Gap Inc., according to Siddiqur Rahman, managing director.
An uncertain prognosis for demand from Europe as a result of the Russia-Ukraine conflict has added to the woes of textile manufacturers in Asia, which includes China and Bangladesh, the world's leading garment exporters.
According to Rahman, more than 60% of Bangladesh's clothing are sent to Europe.
Several small garment companies in India, the world's largest cotton producer, are straining to meet orders from three months ago, when cotton costs were approximately a third lower than they are now.
According to Ashok Juneja, head of India's Textile Association, "many small units have stopped receiving new orders."
Cotton prices in India have more than doubled in a year after the crop was hampered by floods.
Global prices rose 70% over the period, reaching their highest level since May 2011, with analysts forecasting more gains as a result of drought-related damage to output in leading exporter the United States and a resurgence in Chinese demand once COVID-19 restraints are lifted.
"Buyers are not prepared to boost pricing," said Ravi Sam, managing director of Adwaith Textiles, an Indian exporter, in a double blow for garment makers. He continued, "They're also unsure about summer demand, especially in Europe."
Spinning mills in southern India, which accounts for the majority of the country's textile exports, chose to stop producing yarn and sourcing raw cotton in May, according to the South India Spinners Association.
Many industry workers were laid off during COVID lockdowns, making the shutdowns very difficult for them.
"Nearly 40 percent of the factories here have been closed because they are financially unviable," said Duraisami, who just lost his job at a textile factory in Tamil Nadu's southern state.
Thousands of people in the area, including Duraisami, lost their employment in May, according to the state government.
POLYESTER THAT IS CHEAPER
Asian garment manufacturers, whose customers include Walmart Inc. and Nike, rely primarily on Europe and the United States for ready-made garment exports.
(Image courtesy of Thomson Reuters: https://fingfx.thomsonreuters.com/gfx/ce/zgpomeleqpd/TopCottonProducersExporters.png)
While demand increased in the first quarter as the world recovered from the epidemic, it was hindered by new China COVID restrictions and rising fuel prices as a result of the Russia-Ukraine war.
Shipping costs have quadrupled since the outbreak, and multinational brands are not absorbing the higher costs, according to Rahman.
"The burden is on the manufacturers," he explained.
To save money, some mills are switching to synthetic fiber, which might cost $0.60-$1 per pound compared to $1.4 for raw cotton.
According to Rogers Varner, president of Varner Brokerage in Cleveland, Mississippi, "from what we hear from the mills in Asia, they are raising spinning ratios in favor of polyester."
However, due to contractual obligations to produce a certain quality of fabric, this switch has limitations. "There will be some replacement," said Louis Barbera, partner and analyst at VLM Commodities Ltd. "But you can't just replace something because you don't want to pay for it."
TAILWINDS
Costs are unlikely to come down anytime soon, according to industry insiders.
Prices surged despite China's lockout, which accounts for nearly a third of global cotton consumption, and are expected to rise higher once the country begins buying, according to a Singapore-based dealer with a global trading firm.
China's demand, on the other hand, is currently dismal. Textile units have roughly a month's worth of yarn and cloth on hand, compared to the usual 10-15 days, according to a China-based dealer.
The seller noted that about 400,000 tonnes of Xinjiang cotton are utilized per month, which is half of what it was a year ago.
However, industry players believe demand will improve following the lifting of a severe lockdown in Shanghai, China's largest metropolis, at 1600 GMT on Tuesday, or midnight local time.
The hot weather in Texas, which produces more than 40% of the country's supply, should further help prices.
"Cotton prices will exceed present levels if we don't get... numerous episodes of rainfall in west Texas," Barbera warned.
This could raise apparel prices in the long run, adding to inflationary pressures.
"Cotton prices, in my opinion, are rising all the way to the retail store. People will eventually conclude that they can't or won't buy "Keith Brown, the principal of commodity firm Keith Brown and Co in Georgia, said as much.
