Nov. 4 (Bloomberg) -- A doubling of cotton prices since Feb. 1 may mean more expensive clothes, sheets and towels as textile mills including India’s Arvind Ltd. and retailers such as Next Plc pass along higher costs to their customers.
Next, a Leicester, England-based clothing retailer, said yesterday it will raise prices as much as 8 percent in the first quarter because of the jump in costs. Ahmedabad, Gujarat-based Arvind, the world’s largest denim maker and a supplier to jeans maker Levi Strauss & Co. and Gap Inc., have raised prices by as much as 15 percent, Citigroup Inc. economists Rohini Malkani and Anushka Shah wrote in an Oct. 11 report.
“We will have to wait and see if further price increases to reflect future cotton prices ultimately cause demand destruction,” Delta Apparel Inc. Chief Executive Officer Robert Humphreys told analysts on an earnings conference call on Oct. 28. The Greenville, South Carolina-based owner of Fun-Tees Inc. and sportswear maker MJ Soffe Co., plans to charge more for catalog and private-label clothing, he said.
Cotton futures surged to $1.392 a pound yesterday in New York, the highest price in 140 years of trading, on signs that dwindling global supplies won’t meet mounting demand from China, the biggest user. Cotton’s 79 percent gain this year was the biggest on the Standard & Poor’s GSCI Index of 24 commodities.
“Retailers are going to be forced to up their prices,” said Andy Ryan, a senior-risk management consultant at FCStone Fibers & Textiles in Nashville, Tennessee. Consumers probably won’t see the increases until after the holidays, he said.
Consumers may pay as much as 2 percent more for cotton apparel including denim in 2011, said Kim Kitchings, a senior director at Cotton Inc., a research and promotional organization for the industry in New York.
Low-End Buyers
Buyers of low-end products, where profit margins for retailers are thinnest, will be the hardest hit, said Armelle Gruere, a statistician at the International Cotton Advisory Committee in Washington.
The increased cost of cotton may boost the retail price of an average pair of jeans by about 40 cents, Gruere said. “For $10 or $15 jeans, you’ll notice the difference,” she said.
World cotton demand is forecast to rise to 120.77 million bales for the season that ends July 31, up 2.6 percent from last year, the U.S. Department of Agriculture said Oct. 8. Global use will outpace production by 4.09 million bales, the agency said. A bale weighs 480 pounds, or 218 kilograms.
Bowling Green, Kentucky-based Fruit of the Loom, a closely held underwear maker, estimates it uses about 425 million pounds of yarn each year, of which about 65 percent is cotton.
Retail ‘Nightmare’
“It’s a worst nightmare for a retailer to have to up their prices,” FCStone consultant Ryan said.
Retail stores in the U.S. are reluctant to raise prices because consumers have cut back on spending, according to Judith Russell, executive editor of the Apparel Strategist, a monthly newsletter on the textile industry.
The Thomson Reuters/University of Michigan final index of consumer sentiment fell to an 11-month low of 67.7 in October.
“We’re in a rationing mode, so something has to give,” said Rogers Varner, the president of cotton brokerage Varner Bros. in Cleveland, Mississippi.
To protect profit margins and limit price increases, some manufacturers will increase the amount of cheaper polyester fibers in clothing, rugs and car upholstery.
Mill use of the synthetic fiber, a common substitute for cotton, surged to 22.4 million pounds (10,160 metric tons) in September, up 21 percent from the month before and 22 percent higher than a year earlier, the U.S. Census Bureau said on Oct. 28.
Cotton-Poly Blends
“Given surging cotton prices, we have already seen more cotton-poly blends” from manufacturers, said Andreas Engelhardt, a senior manager at Oerlikon Saurer Arbon, a unit of Pfaeffikon, Switzerland-based OC Oerlikon Corp., that makes machinery for cotton, wool and man-made fiber spinners.
Polyester in China climbed to 83.43 cents a pound in the week ended Oct. 28, up 40 percent from a year earlier, the National Cotton Council said in its weekly cotton report. Cotton rose to $1.8075 a pound in China, an increase of 90 percent from 12 months earlier, it said.
“We’ll see prices ease over time,” said Sharon Johnson, a senior analyst at First Capitol Group LLC. “How quickly that happens, that’s the hard part.”
