When Cone Denim President Steve Maggard talks to customers about the rising raw material costs the company’s factories have struggled with over the past year, he’s prepared with a succinct slideshow presentation where every graphic looks like a path ascending a steep mountain.
Everyone seems to be focused on skyrocketing cotton prices, but the slides Maggard shares with clients show that everything is going up. Cotton prices increased by 40%, indigo dye costs jumped over 100%, Lycra increased by 60%, polyester prices increased by 45%, sulfur black/brown increased by 25%, acetic acid prices are up 3,000%, caustic soda is up 120% and sodium hydrosulfite is up 50%, he reported.
“We’ve had a tough year margin-wise,” Maggard said from his office in Greensboro, North Carolina. While the company is headquartered in the United States, it no longer manufactures denim in the United States. It has two denim factories in Mexico with around 1,100 to 1,200 workers and one in China with 750 to 800 employees. However, around 75-80% of the company’s customers are in the United States.
The surge in prices does not stop at raw materials alone. Shipping costs are exorbitant. “Ocean freight is five times higher than 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’re paying $24,000 to $26,000. On top of that, it’s hard to get reservations and containers.
And there you have a perfect storm that has driven denim fabric prices up at least 20-30% over the past year. While denim brands know that input costs aren’t going down anytime soon, they’re also not thrilled to pay more. “Customers are saying they can’t pass those costs on to their consumers, and their customers won’t accept price increases of this magnitude,” Maggard said. “We’ve dropped some programs because we can’t sell fabric at a loss.”
To help customers absorb rising fabric costs, Cone Denim worked with manufacturers to cut costs by using lighter weight denim or changing from a darker shade to a cheaper lighter shade.
In the past, polyester could have been added for less expensive denim, but polyester prices have risen as much as cotton prices, not to mention that it can be less aesthetically pleasing and have its own environmental consequences. “Most of my customers don’t like a lot of polyester because of the hand, and the look is shiny and lustrous,” Maggard said.
No one is immune to high prices
If customers aren’t happy with the denim prices at Cone Denim, they don’t really have a choice because the situation is the same all over the world.
Cotton, no matter where it is grown, has seen its price hit its highest level in a decade. Cotton experts simply describe it as a matter of supply and demand. Garment factories are producing at capacity, increasing the need for more cotton, and investors are speculatively buying the commodity. “Speculators have taken their money out of the market,” noted Jon Devine, senior economist at Cotton Incorporated.
Politics also played a role. In December 2020, the Trump administration blocked U.S. companies from importing cotton and cotton products from China’s western Xinjiang region, fearing they were produced by forced labor from Uyghurs, an ethnic group predominantly Muslim. This was reinforced in late 2021 when the Biden administration signed into law the Uyghur Forced Labor Protection Law, which comes into effect on June 21 and prevents any cotton or product made with Xinjiang cotton from that region from entering the states. -United.
The law requires Chinese companies to buy cotton from the United States or other regions, make products with that cotton, and then resell it in the United States to enter the country legally.
All of these factors have led to a spike in cotton prices Currently, the Cotlook-A index, considered representative of a global cotton price, has risen to $1.41 per pound, its highest since 2011. There a year ago it was around 98 cents to $1 a pound, up 40% in one year.
In other parts of the world, cotton for some mills is a bit more expensive due to fluctuating currency prices and higher inputs. At Artistic Milliners in Karachi, Pakistan, CEO Omer Ahmed saw his global cotton prices increase by 40% while his Pakistani cotton increased by 45%. Artistic Milliners sources 70% of its cotton from Pakistan and the rest comes from the United States, Brazil and parts of Africa.
Ahmed saw prices all start to rise in the latter part of 2020, but they have “really zoomed in over the last few months,” he said. “Indigo prices have been fairly stable over the years, but have increased 68% in the last 12 months.”
In the past, Ahmed tried to go long by buying commodities, but it became difficult. “Three or four month longs would be best, but yarn producers don’t quote prices for more than a month because there’s so much volatility,” he said.
Trying to keep pace with rising raw material costs makes it difficult for Artistic Milliners to determine how much to charge customers. “We did an extra 5% for one season, but by the time we produced the fabric our prices had gone up 10% to 15%,” he said. “The cost of production exceeded the selling price, even with the supplements.”
To cut costs, Artistic Milliners, which employs 24,000 people in its mills and cut and sew factories, worked with lots of blends and incorporated more recycled cotton. “We looked for ways to reverse-engineer our products to make them more profitable,” Ahmed said.
Artistic Milliners is not alone. Halfway around the world, in Belo Horizonte, Brazil, century-old textile company Santanense is grappling with soaring prices for cotton and other inputs.
Santanense sources all of its cotton from Brazil. And in Brazil, like everywhere else, it’s an expensive commodity. “Cotton prices have increased by 80% in the last two years,” said Annette Walkers, senior executive of Companhia Tecidos Santanense. With this in mind, Santanense has increased the price of its bull jeans, cotton twills and cotton/Lycra blend fabrics by 30%.
To reduce costs, the Brazilian textile company has reduced its range of fabrics to improve the efficiency of its factories. Engineers worked to find other dye combinations while adjusting their color palette to lighter shades.
“We make thinner/lighter cotton fabrics that are more comfortable and where the customer recognizes they have better value,” Walker said. “And we have developed other blends. For example, we increase the percentage of certain other synthetic fibers to add value and offset the price of cotton. We add more Lycra T400 and sometimes a little polyester, modacrylic, aramid and other fibers.
At the same time, the company is focusing on more cost-effective technical fabrics such as flame retardant inputs which command a higher price and higher profit margin.
In Spain, Tejidos Royo, located in Valencia, saw its cotton price jump by 60% in one year. Around 70% of the company’s cotton comes from Europe to supply a market mainly in Germany and Spain. “This is a drastic increase that inevitably impacts the price of fabric manufacturing and illustrates the difficult environment and the strong pressures we face in the textile sector,” said Rocio Perez de los Cobos, Chief Marketing Officer. of the company. “Unfortunately, we had no choice but to raise prices for our customers. However, we have only increased the price by the same amount as the increase in raw materials, chemicals and energy.
Nevertheless, customers did not take it well. “It’s difficult for them to understand but in the end, as it’s a general increase in the world, they accept it”, notes the marketing director.
Tejidos Royo, founded in 1903, reduces costs by using more recycled energy, 10% of which comes from solar energy. And the company uses more recycled cotton.
Even before the pandemic and rising input costs, Tejidos Royo was on track to reduce water and chemical consumption. All of the company’s denim production is dyed with Dry Indigo and Dry Black technologies. It reduces energy consumption, uses 89% fewer chemicals and completely eliminates waste water discharge.
Bossa, one of Turkey’s largest textile companies, is another factory that is turning to sustainability to cut costs. Founded in 1951, the company has been committed to sustainability for some time now. “It has now 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 can help offset the 300% rise in energy prices the company has experienced as well as the 100% rise in cotton and indigo dye costs. This led the company to see a 40% increase in fabric costs, but it was only able to pass on 20% of that to customers, Duru said.
With so many price increases, everyone wonders if cotton prices will go down this year. As of now anyone can guess, but it could stay elevated for at least the rest of the year until consumer demand wanes and speculators turn to other commodities.
The National Cotton Council of America recently predicted that US growers would plant 12 million acres of cotton this year, a 7% increase from last year’s plantings. If there isn’t a huge drought in West Texas, where 25% of the US cotton crop comes from, it could lead to lower prices.
The futures market expects prices to decline before the end of the year, noting that December NY/ICE futures values are trading 15 cents per pound below July values.
And consumer demand could shift away from clothing and more towards electronics and entertainment.
“There’s a lot of uncertainty in the market right now,” Devine added. “Consumers may rebalance their spending toward services rather than goods like clothing. Retailers may feel less inclined to postpone orders for shipping reasons. favorable demand winds encountered in recent months could reverse.
This feature appears in the Spring 2022 issue of Rivet. Click here to read more.