15 September 2022, Mumbai:
Considering the ongoing inflation around the world especially red hot inflation in the US world's biggest economy, reading into the trade data & given that inflationary/cost pressures persist. It is evident that inflation affects different stakeholders in a different fashion.
But on the whole, it is anecdotal that inflation bites the common man more than anybody else thus global demand will drive the cotton and textile sectors. The impending inflation with very sticky consumer price index (CPI) values in textile importing countries such as the USA, the EU, and the UK underscores the vitality of demand as a determinant.
Supply shock
This year has so far seen unusual volatility in cotton prices owing to the tight supply situation. Reading into the global cotton, supply & availability dynamics fundamental of cotton is not bullish at this juncture. The semblance is Cotton will be in tight supply due to drought in West Texas, unexpected floods disaster in Pakistan, and several other factors. The textile balance of the sector for once has shifted heavily on the supply side of the equation. However, it is consumers' end products demand only to drive the textiles industry.
A deep dive into the sector dwells on the volatility in the price of MCU-5 cotton per candy (356 kg) from December 2021 to September 2022. While at the same time price peaked on May 22, though it has started to moderate.
Everybody knows inflation was fueled by the Russia @ War (Russian invasion of Ukraine), having sustainably elevated fuel/oil prices, and slackened consumption of non-discrete/non-essentials.
Dwelling on the price situation of MCU-5 cotton, which is spun into fine counts used in home textiles, knowing that these textiles had many takers during the pandemic period wherein the demand aggregate was peaking. The cotton price situation/price dynamics since May 2022 are reflective that the textiles demand presently is moderating, factoring in high prices for essential products like groceries.
The caveat here is, on one hand, we have to ensure supply security & on the other hand price competitiveness to tackle the double whammy of falling demand & cost pressures.
The very recent Consumer Price Index number released by the United States Bureau of Labor Statistics showed an increase of 8.3% over last year, indicating that inflation continues to be red-hot & sticky. This is very likely shall lead to the Federal Reserve Bank in the US to yet again raise the interest rates to rein in inflation. Again steep rise in interest rates will strengthen the US dollar, which has a domino effect on the cost of imported goods traded in the dollar. Inflation is also at a steep high at 9.9% in the UK.
Thus given geopolitics & prevalent macroeconomic situation it will surely dampen global consumer confidence/buying power, influencing & hurting the purchase of non-essential/non-discreet articles.
Festivity & fervour
“Normally during the present times with the arrival of the festive season in India, we see high demand for yarns. But the demand is not there,” stated Velmurugan Shanmugam, GM of Aruppukkottai-based Jayalakshmi Textiles, India. On June 25th in a meeting hosted by the Textile Association-South India Unit in Coimbatore, attended by about 720 people from the textile sector, Seshadri Ramkumar, Professor articulated the importance of analyzing the holistic picture of supply and demand, macroeconomic and geo-political scenarios in planning ahead for the textile sector.
“If we see demand moderation, there is a potential for the cotton market to move down despite tight supply,” stated Shawn Wade, Director of Policy Analysis and Research of Lubbock-based Plains Cotton Growers, Inc.
Given the tricky unprecedented high inflationary situation the global economy is staring at, stressful & unpredictable power situations in the EU and the UK are going to add to the economic woes. To add fuel to the fire is the ongoing energy crisis/supply challenges arising out of brewing diplomatic tension between Russia & Europe, as inflation is peaking so it will only be prudent for the textile sector to factor in for moderated demand in the coming months.
Caveat Emptor et Venditor!
Therefore, it is imperative that Textiles Sector & Cotton is driven by demand in turn determining the price situation of raw materials, while supply constraints, availability of resources stay and all the above has to be factored in by the industry to build near-term prognosis.
(CREDITS: Seshadri Ramkumar, Professor, Texas Tech University, USA)
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