Cotton rally puts pressure on Asian apparel makers – Markets

MUMBAI/DHAKA: A near doubling in benchmark cotton futures to 11-year highs on the heels of a spike in freight and fuel prices hits Asian garment makers while their customers global retailers are reluctant to absorb the additional costs.

Losses have piled up for garment makers in Asia, among the region’s top employers, with some smaller units suspending operations, putting thousands out of work, jeopardizing post-pandemic recovery and posing a new challenge for policymakers already struggling with high inflation. To stay viable, some yarn and apparel manufacturers are even replacing cotton with cheaper synthetic fabric.

“Our factories are running at full capacity. But at what price ? We are making almost no profit,” said Siddiqur Rahman, managing director of Dhaka-based Sterling Group, which supplies brands such as H&M and Gap Inc. to clothing manufacturers in Asia – home to the world’s leading garment exporters. , China and Bangladesh.

Bangladesh exports more than 60% of the clothes it makes to Europe, Rahman said. In India, the world’s largest cotton producer, several small garment manufacturers are struggling to meet orders from three months ago, when cotton prices were about a third below current levels. “Many small units have stopped taking new orders,” said Ashok Juneja, chairman of the Indian Textile Association. Indian cotton prices more than doubled in a year after rains hit the harvest.

World prices jumped 70% in the period, hitting the highest level since 2011 in May, with analysts predicting more gains amid drought-induced damage to output from the top US exporter and a Chinese demand picks up as COVID-19 restraints ease.

In a double whammy for garment makers, “buyers are unwilling to raise prices,” said Ravi Sam, managing director of Adwaith Textiles, an Indian exporter. “They are also uncertain about summer demand, especially in Europe,” he added.

In southern India, which accounts for most of the country’s textile exports, mills decided in May to stop producing yarn and source raw cotton, the South India Spinners Association said. The shutdowns are hard on industry workers as many were unemployed during the COVID shutdowns.

“Almost 40% of the factories here have been closed because they are not financially viable,” said Duraisami, who has only one name and recently lost his job at a textile factory in the southern state of Tamil. Nadu. Like Duraisami, thousands of people in the region lost their jobs in May, the state government said.

CHEAPER POLYESTER

Asian apparel manufacturers, which also count Walmart Inc and Nike among their customers, rely heavily on Europe and the United States for ready-to-wear apparel exports. While demand rose in the first quarter as the world emerged from the pandemic, new COVID restrictions in China and rising fuel prices amid the Russia-Ukraine conflict stifled it. Shipping costs have quadrupled from pre-pandemic levels and global brands are not absorbing the additional costs, Rahman said.

Michael O. Stutler