Demand Remains Strong; Cotton Prices Inch Up
Jim Phillips, Yarn Market Editor
"Ring-spun continues to be strong," said one spinner. "We have a healthy backlog of orders and are running a full schedule."
Added a yarn broker: "With such high demand, the opportunity exists to move more open-end yarns, synthetics and blends. We've noticed an uptick in demand lately, especially for blends."
Spinners are generally optimistic about the remainder of the year. "We are solid for the rest of the quarter and have no reason at the moment to expect demand to diminish. Retailers are in the midst of back-to-school, and then we have the holidays coming up. I think the opportunity exists to finish the year on a strong note."
The biggest concern for many spinners is the gradual increase of raw material prices. Cotton prices are slowly inching up, tickling the 90-cents-per-pound threshold in mid-August.
Average spot cotton quotations on the base quality of cotton — color 41, leaf 4, staple 34, mike 3.5-3.6 and 4.3-4.9, strength 27.0-28.9, uniformity 81.0-81.9 — in the seven designated markets measured by the U.S. Department of Agriculture (USDA) averaged 86.63 cents per pound for the week ended Aug. 15, 2013. The weekly average was up from 82.79 cents last week, and 67.98 cents reported for the corresponding period a year ago. Daily average quotations ranged from a low of 84.96 cents on August 9 to a high of 87.49 cents on August 13. The IntercontinentalExchange October settlement prices ended the week at 91.64 cents, compared to 89.38 cents the previous week.
While spinners are not currently alarmed at the price increases, they are keeping a watchful eye on the market. "With cotton yarns in high demand, you would expect the price of materials to creep up," said one spinner. "So far, the increases have not been anything that have set off alarm bells. But, at the same time, cotton prices have increased about 20 cents per pound over the past year."
Added a yarn broker: "The market seems pretty stable at the moment. In 2011, prices skyrocketed to an artificial high due to a combination of factors. Then, cotton prices fell to what was an artificial low. I think what we have now is some measure of equilibrium."
The market conditions that led to $2.00-plus-per-pound prices a few years ago were a lot different from today, spinners say. "There was a combination of high demand throughout the world and short supply that caused a run on cotton products," said one yarn broker. "Customers were afraid if they didn't place large orders, they would get caught short and be without product during their most active selling seasons. Then, of course, the bottom fell out of the market and cotton prices fell from more than $2.00 per pound to around 60 cents per pound in a very short period of time. As a result, a lot of mills got stuck with an inventory of raw material that was valued considerably above the prevailing market price. It was an ugly situation that took a lot of spinners a long time to recover from."
Global Cotton Production And Demand
Globally, demand for cotton for the rest of the year is expected to remain below production levels, according to the USDA. However, at this point, there is some concern about the U.S. cotton crop and what it could mean for raw material prices over the next few months. While the latest USDA estimates project world cotton stocks to reach a new record at 93.8 million bales — 7.4 million bales above the previous season — U.S. cotton production estimates were revised downward to 13.1 million bales — 447,000 bales below the USDA's July estimate, and nearly 4.3 million bales below last season's crop. The 2013 production decline, according to the USDA, is the result of both smaller area and a lower national yield. The lower production creates the possibility that demand for U.S. cotton will outstrip production for the first time in three years, the USDA reports.
"There is also some concern now about harvesting," said one yarn buyer. "For the first time in a while, the Southeast is the biggest producer of cotton in the United States. The constant, heavy rains have caused some harvesting issues, meaning that some of the crop could be lost."
"The only thing we can do at the moment is wait and see," said one industry executive. "There is no cause for alarm at the moment. The primary difference between now and a few years ago is that China has a huge cotton reserve and likely won't be in a position to try to buy everything on the global market."
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