Tuesday, June 28, 2011

Rising cotton price puts pressure on retailers By James Thompson 27 June

 The era of cheap clothing on the high street is probably over, as soaring demand from emerging markets keeps the price of natural fibres stubbornly high, a body representing the US cotton industry has warned.

 The comments from Cotton Council International came as the price of cotton jumped 13 per cent to $1.65 (£1.03) a pound in New York trading last week, largely driven by fears over a disastrous recent harvest in the southern states of the US.
 While cotton prices are below the 140-year peak of $2.20 a pound they hit on 7 March, they remain more than double last year's prices and were blamed for a sharp fall in profits at the Swedish fashion giant H&M last week.
 Allen Terhaar, an executive director at Cotton Council International, which promotes the National Cotton Council of America, said: "Will we continue to see deflation in apparel and home furnishings prices? Probably not. The consumer should not expect to depend on deflation in clothing as we have seen for many years."
 He described growing demand for clothes from the burgeoning middle classes in countries such as China, India and Brazil as "very important" in the long-term upward trend for prices.
 Mr Terhaar said: "The real generators of added demand are the emerging markets. Between now and 2025, we will have 20 million tonnes of added fibre demand, of which the US is expected to add just 0.5 million tonnes – whereas China and India are expected to add 14 to 15 million tonnes combined. This is through the combination of population and economic growth."
 Rising supply chain costs and floods in countries such as Pakistan and Australia have also put pressure on prices.
 And its not just cotton. The rocketing price of wool is compounding retailers' problems. The floods in Queensland earlier this year have contributed to the wholesale price of wool in Australia, the world's biggest producer, more than doubling this month to nearly $15 a kilogram.
 However, it is the news on cotton prices rising again that will probably alarm UK retailers the most, as many thought prices would ease later this year. Lord Wolfson, the chief executive of the fashion retailer Next, brought the subject to the attention of the UK public last September when he warned that clothing prices were likely to rise by as much as 8 per cent for this year's spring and summer ranges.
 A fresh reason for the uptick in cotton prices is the recent bad weather in the US, which supplies about 40 per cent of the world's trade in cotton. In the southern states, severe floods near the Mississippi River in May were followed by a drought in Texas in June.
 Mr Terhaar said: "In Texas, it has been the worst drought in 100 years. Despite a 12 per cent increase in cotton acreage [in the US], production is likely to be down." A US Department of Agriculture report due for release on 30 June is likely to show a larger-than-expected drop in cotton acreage.
 H&M blamed its 18 per cent fall in pre-tax profit for the three months to 31 May on higher cotton prices and wage inflation in Asia.


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