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Fiber Prices on the Rise Thanks to High Demand and Increased Costs

While factors vary from supply and demand issues to China policy and polyester pollution concerns, fiber prices have risen in the last month and signs point to a continued upward slope.

The pattern of higher prices throughout the apparel supply chain has been consistent, with retail apparel prices rising a seasonally adjusted 1.7% in January–the biggest monthly increase since 1990, the January Consumer Price Index showed.

Spot prices on U.S. cotton averaged 80.48 cents per pound for the week ended March 8, the highest weekly average since May 2014, when the average was 82.11 cents a pound, according to the U.S. Department of Agriculture.

The weekly average was up from 78.60 per pound the week before and further above the 74.84 cents per pound reported the corresponding period a year ago, USDA said.

Cotton Incorporated’s Monthly Economic Letter for March noted that price shifts in international benchmark prices were mixed in February, with New York futures and the A Index both, while South Asian prices were “flat to lower,” and Chinese prices were “stable.”

Prices for the May New York futures contract trended higher since late February, Cotton Inc. said in its report released on Friday.

“In the first full week of March, there was a surge that briefly lifted [futures] values over 85 cents per pound and new life-of-contract highs,” Cotton Inc. said. “Shortly after, there was a collapse, with values dropping 3 to 4 cents. In the latest trading, prices have been rising again, with the most recent values 84 cents per pound.”

The A Index, a global average of the cheapest five quotations of upland cotton, also increased over the past month, with the most recent values of about 92 cents per pound about five cents higher than a month earlier.

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The China Cotton Index was stable in international and domestic terms in the month, according to the report. Indian spot prices decreased slightly in late February, falling to the equivalent of 78 cents to 80 cents per pound, Cotton Inc. reported.

Pakistani prices decreased from the equivalent of 80 cents a pound to 76 cents in February. In early March, prices moved slightly higher, with the latest levels near 78 cents per pound.

The Cotton Inc. report noted that late last month, the USDA released a preliminary set of forecasts for an upcoming crop year that indicated that in the 2018-19 growing season, global cotton production will be down about 4 percent to 117 million bales and that global cotton consumption will be up about 2 percent to 122.9 million bales than in 2017-18. These early estimates suggest a production deficit of 5.9 million bales, or 5 percent of projected global mill-use, will occur in 2018-19.

“Considering that world cotton stocks will remain high by historical standards, the global production deficit may not be a primary driver of price movement,” Cotton Inc. said. “As has been the case for the past several years, what can be expected to be more important for price direction is the allocation of stocks inside and outside of China. China has successfully drawn down its stocks over the past three crop years and is expected to reduce its stocks again in 2018-19.”

With global stocks generally on the high side, cotton prices should have been driven lower, but they have been steadily increasing, instead.

“A range of possible explanations surfaced to explain why prices have been rising instead of falling,” the report noted. “Among these have been concerns regarding the size of the Indian crop, speculative investment, the record level of unfixed on-call sales and the high volume of committed U.S. export sales.”

Transport bottlenecks at U.S. ports have been a contributing factor, though that seems to have been resolved for now, according to the report.

“The USDA expects [a] high level of U.S. stocks to be maintained in 2018-19, but several key questions associated with that projection have already emerged, most notably the impact of dry West Texan weather and the potential for China to increase imports,” Cotton Inc. added.

A recent report from the International Cotton Advisory Committee noted global cotton consumption is expected to continue to grow “based on global economic expansion, an expected acceleration of consumer demand for textiles, manufacturing growth for cotton and rising environmental and production costs for synthetics.”

The U.S. Department of Labor’s Bureau of Labor Statistics January report on the Producer Price Index (PPI) saw the synthetic fiber index increase 4.6% to 128.3 from 112.7 a month earlier and stand at 6.5% from January 2017.

There have been several recent reports criticizing the role of synthetic fiber, particularly polyester, in contributing to ocean pollution caused by microplastics released during machine washing.

A bill recently introduced in the California State Assembly would require all clothing made from fabric that is more than 50 percent polyester to bear a conspicuous label warning that the garment sheds plastic microfibers when machine laundered.

The Hohenstein Institute is conducting a study aimed at reducing the discharge of microplastics into wastewater that is said to cause harmful health effects on animals and humans.

The costs of polyester production are likely also impacted by increased petroleum prices, as it is both a component of the polymer and raised manufacturing costs for the energy-intensive material. The price of light sweet crude oil increased 1.9% to $62.04 on Friday on the New York Mercantile Exchange.

Meanwhile, the USDA’s weekly National Wool Review’s average of Australian wool delivered to the U.S. came in at $5.82 per pound last week compared to $5.63 a month earlier.

John Roberts, the Woolmark Co.’s general manager for the Eastern Hemisphere, said in a report on Woolmark’s web site that “the current buoyant wool prices are a reflection of the underlying dynamics of supply, demand and consumer priorities that are looking favorable for wool.”