Most people that are producers and purchasers of FR clothing are aware of the supply problems facing the industry.
What is causing the global Cotton supply problems?
There are several reasons:
- Floods in Pakistan
- Restrictions on exports by India
- Average yields from US and other countries
- Unprecedented demand from China
Pakistan and India
Not to get too deep here, it seems that Pakistan had a terrible crop due to floods. India (for various reasons) decided to limit the export of fiber and to save that fiber for their internal mills and garment producers. This provided some short term benefits for India garment manufacturers, but it could backfire if the local farmers decide to move to other crops.
Yields were up, but not enough
US cotton producers had modest increases in production yield, but they were not enough to satisfy the increased world demand.
China
On Average, China’s consumers wear their clothes longer than US consumers, so they use only about 15% of the cotton fiber that we do per person per year. Now that is changing and we are seeing the start of a new era where the Chinese government will aggressively acquire commodities like cotton to supply their growing internal demand. This will be the big factor impacting commodities going forward.
For years, China has maintained a strategic reserve of cotton that shielded their mills and garment factories from supply issues. In 2010, they exhausted this reserve and desperately started acquiring fiber to maintain production. They also want to replenish the reserve! This means that their demand this year will be even greater than their consumption. OUCH!
Now we are in 2011 and Brazil and Australia were
supposed to provide relief for China and the rest of the world. Brazil will still come in with a good crop in April, but the record floods in Australia are going to greatly reduce the “bumper crop” estimates that Australia reported in the first week of January.
BOTTOM LINE…
Here are some of the possible outcomes.
- Cotton supply could rise tremendously and world cotton prices could stabilize at .90 per lb. OR…
- China may well buy up the majority of Brazil’s cotton in April and global prices would stay around 1.50 per lb
- India may limit cotton fiber exports again to maintain their textile and apparel industries.
- North American, Central and South American supply chains may suffer under this scenario because of their inability to secure key commodities as efficiently and effectively as China.
What do you think will happen? Give us your thoughts!
Links:
http://english.cri.cn/6826/2011/03/31/168s629831.htm