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Denim Mills Gamble on the Cost of Raw Materials

When Cone Denim president Steve Maggard talks to customers about the rising raw material costs the company’s mills have struggled with this last year, he comes prepared with a succinct slideshow presentation where each graph looks like a trail going up a steep mountain.

Everyone seems to be concentrating on the precipitous rise in cotton prices, but the slides Maggard shares with his customers show that everything is going up. Cotton prices have risen 40 percent, indigo dye costs have jumped more than 100 percent, Lycra has increased 60 percent, polyester prices are up 45 percent, black/brown sulfur inched up 25 percent, acetic acid prices have skyrocketed 3,000 percent, caustic soda is up 120 percent and sodium hydrosulfite mushroomed 50 percent, he reported.

“We’ve had a rough year in terms of margins,” Maggard said from his office in Greensboro, N.C. While the company is headquartered in the United States, it no longer makes denim in the U.S. It has two denim mills in Mexico with about 1,100 to 1,200 workers and one in China with 750 to 800 employees. About 75 percent to 80 percent of the company’s clients are in the U.S., however.

Ballooning prices don’t stop with just raw materials. Freight costs are sky high. “Ocean freight is up five times more than what it was before,” Maggard noted. “Before [the pandemic] we were paying $4,000 to $5,000 for a container from China to arrive in Charleston [N.C.], and now we are paying $24,000 to $26,000. On top of that, it is hard to get bookings and containers.”

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And there you have a perfect storm leading to denim fabric prices inching up at least 20 percent to 30 percent in the past year. While denim labels know that input costs aren’t going down soon, they aren’t too happy to be paying more either. “The customers say they can’t pass those costs on to their consumers and that their customers won’t accept price increases of this magnitude,” Maggard said. “We’ve walked away from some programs because we can’t sell fabric at a huge loss.”

Cone Denim president Steve Maggard outlines the rising costs of raw materials.
Cone Denim president Steve Maggard outlines the rising costs of raw materials. Rivet

To help customers absorb the rising fabric costs, Cone Denim has worked with manufacturers to reduce costs by using a lighter weight denim or going from a darker shade to a less expensive lighter shade.

In the past, polyester might have been added for a less costly denim, but polyester prices are up just as much as cotton prices—not to mention it can be less aesthetically pleasing and comes with its own environmental consequences. “Most of my customers don’t like a lot of polyester because of the hand, and the appearance is shiny and has a luster,” Maggard said.

No one is exempt from high prices

If customers are unhappy with denim prices at Cone Denim, they don’t have much choice because the situation is the same around the world.

Cotton, no matter where it is grown, has seen its price zoom to its highest level in a decade. Cotton experts describe it simply as a matter of supply and demand. Clothing factories are producing at capacity, adding to the need for more cotton, and investors are making speculative purchases of the commodity. “Speculators have been taking their money out of the market,” noted Jon Devine, senior economist at Cotton Incorporated.

Politics has played a role, too. In December 2020, the Trump administration blocked U.S. companies from importing cotton and cotton products that came from China’s western Xinjiang region over concerns it was produced using forced labor by the Uyghurs, a predominantly Muslim ethnic group. That was reinforced in late 2021when the Biden administration passed into law the Uyghur Forced Labor Protection Act, which goes into effect June 21 and keeps any cotton or products made with Xinjiang cotton from that region from coming to the United States.

The act is forcing Chinese companies to buy cotton from the U.S. or other regions, manufacture goods with that cotton, and then sell it back to the U.S. to legally enter the country.

All these factors have led to a spike in cotton prices Currently, the Cotlook-A index, which is considered representative of a world cotton price, increased to $1.41 a pound, its highest since 2011. One year ago, it was around 98 cents to $1 a pound, showing a 40 percent rise in one year.

In other parts of the world, cotton for some mills is a little more expensive because of fluctuating currency prices and higher inputs. At Artistic Milliners in Karachi, Pakistan, CEO Omer Ahmed has seen his global cotton prices rise 40 percent while his Pakistani cotton is up 45 percent. Artistic Milliners buys 70 percent of its cotton from Pakistan and the rest comes from the U.S., Brazil and parts of Africa.

Ahmed saw all prices starting to rise in the latter part of 2020, but they have “really zoomed in the last few months,” he said. “Indigo prices used to be quite stable over the years, but they have gone up 68 percent in the last 12 months.”

In the past, Ahmed has tried to take long positions in buying raw materials but that has grown difficult. “Long positions of three or four months would be best, but yarn producers are not giving prices for over a month because there is so much volatility,” he said.

Trying to keep pace with the rise in raw material costs makes it challenging for Artistic Milliners to figure out how much to charge customers. “We did a 5 percent upcharge for one season, but by the time we produced the fabric, our prices had gone up 10 percent to 15 percent,” he said. “The cost to produce has outpaced the selling price even with the upcharges.”

To cut costs, Artistic Milliners, which employs 24,000 people in its mills and its cut-and-sew factories, has been working with a lot of blends and incorporating more recycled cotton. “We have been looking at ways to reverse engineer our products to made them more cost efficient,” Ahmed said.

Artistic Milliners is not alone. Halfway around the world in Belo Horizonte, Brazil, the centuries-old textile company Santanense has been grappling with skyrocketing cotton prices and other inputs.

Santanense gets all its cotton from Brazil. And in Brazil, like everywhere else, it is an expensive commodity. “Cotton prices have increased 80 percent in the last two years,” said Annette Walkers, a senior executive at Companhia Tecidos Santanense. With that in mind, Santanense has raised the price of its bull denims, cotton twills and cotton/Lycra blended fabrics by 30 percent.

To keep costs down, the Brazilian textile company has reduced its line of fabrics to improve the efficiency in its plants. Engineers have been working to find other dye combinations while adjusting their color palette to lighter shades.

“We are making some finer/lighter cotton fabrics, which are more comfortable and where the customer recognizes they have better value,” Walker said. “And we have developed other blends. For example, we are increasing the percentage of some other synthetic fibers to add value and offset the cotton price. We are adding more Lycra T400 and sometimes a little polyester, modacrylic, aramid and other fibers.”

At the same time, the company is focusing on more profitable technical fabrics, such as flame-retardant inputs that command a higher price and higher profit margin.

In Spain, Tejidos Royo, located in Valencia, has seen its cotton prices jump 60 percent in one year. Some 70 percent of the company’s cotton comes from Europe to supply a market primarily in Germany and Spain. “This is a drastic rise that inevitably impacts the price of fabric manufacturing and exemplifies the difficult environment and the strong pressures we are facing in the textile sector,” said Rocio Perez de los Cobos, the company’s marketing director. “Unfortunately, we had no choice but to raise prices to our customers. However, we only increased the price by the same amount as the increase in raw materials, chemicals and energy.”

Nevertheless, customers didn’t take it well. “It is hard for them to understand but in the end, since it is a general increase worldwide, they accept it,” the marketing director noted.

Tejidos Royo, founded in 1903, is cutting costs by employing more recycled energy with 10 percent of that coming from solar. And the company is using more recycled cotton.

Even before the pandemic and rising input costs, Tejidos Royo was on the path to reduce its water and chemical consumption. All of company’s denim production is dyed with Dry Indigo and Dry Black technology. It reduces energy consumption, uses 89 percent fewer chemicals, and completely eliminates waste-water discharge.

Another mill looking to sustainability to cut costs is Bossa, one of the largest textile corporations in Turkey. Founded in 1951, the company has been employing sustainability for some time now. “It now has become a must for our industry,” said Onur Duru, the company’s general manager. “In addition to sustainable fibers, recycling is of great importance.”

With a new investment, Bossa is adding a recycling facility to its factory as pre- and post-consumer products continue to increase. This may help offset the 300 percent jump in energy prices the company has experienced as well as the 100 percent rise in cotton and indigo dye costs. That led to the company seeing a 40 percent uptick in fabric costs, but they were only able to pass on 20 percent of that to customers, Duru said.

With so many price increases, everyone is asking whether cotton prices will go down this year. Right now, it is anyone’s guess, but it could stay high for at least the rest of this year until consumer demand declines and speculators move on to other commodities.

The National Cotton Council of America recently predicted that U.S. growers would plant 12 million acres of cotton this year, which is a 7 percent increase over last year’s plantings. If there isn’t a huge drought in west Texas, where 25 percent of the U.S. cotton crop comes from, that could lead to lower prices.

The futures market predicts prices will decrease before the end of the year, noting that values for the December NY/ICE futures contract are trading at 15 cents a pound below those for July.

And consumer demand could gravitate away from apparel and more toward electronics and entertainment.

“There is a lot of uncertainty in the market right now,” Devine added. “Consumers may rebalance their spending back towards services as opposed to goods like clothing. Retailers may feel less inclined to pull orders forward for shipping reasons. As those pressures flatten out, tailwinds for demand experienced in recent months could reverse themselves.”

This feature appears in the Spring 2022 issue of Rivet. Click here to read more.