For substantial development the global economy looks forward for establishing prosperity and working on optimum use of natural resources. These natural resources are often utilised as raw materials in many products. In fact the raw materials have a pivotal role to play in strategic economic development. Even though manufacturers have negligible role in costing of the product, but it is an inevitable truth that the prices of raw materials have a major influence on the overall product rates. For manufacturers, price changes can be particularly significant, since the purchase of raw materials adds up to the expenditure. Thus, like all the other sectors, the effect of raw material pricing on final product is an expected trend in textile as well.
So when the price tags of cotton t-shirts carry a hefty number, it is an indicator of rising cotton prices and when the cotton prices decline, it is swiftly assumed that apparel would cost less too. Consequently, when the current year registered a steep decline in cotton prices, the speculation regarding fall in apparel prices has naturally been high. The price of cotton for the NY December future contract touched a high of 68 cents per pound, but again registered a fall of 7 cents per pound in late September. Among the main cotton producing countries, India also experienced a decline from 85 cents per pound to 71 cents per pound. Pakistan's story is also not different from rest of the world, as cotton prices fell from 67 cents per pound to 60 cents per pound. Even though cotton prices around the world have been rather stable over the past month, it is unlikely to stay like that for long.
The foremost reason of this price decline is the oversupply. In order to make most of the high prices of cotton, the producers grew more cotton than required by the market; the result being build up stocks of cotton, which hardly have any takers now. It was also being estimated that the global demand of cotton would continue to remain high throughout 2015. So when China, which boasts of being one of the biggest importers of cotton, announced to cut down cotton imports in 2015, it was a shocker for the global cotton producers. The National Cotton Council has revealed that the Chinese government is expected to cut its cotton imports to 6.4 million bales, which is a sharp decline from 11 million bales in 2013. This announcement from China has further raised the concerns of cotton traders, as lack of demand in China might lead to pining away of cotton stocks. The producers had no choice, but to reduce the cost of cotton to avoid incurring loss.
As per the International Cotton Advisory Committee (ICAC) the cotton supply for the ongoing financial year 2014-2015 would exceed the cotton demand for the fifth consecutive season. These figures go on to suggest that now when the cotton prices have hit a low, it is obvious to see the prices of cotton garments down. Thus, the markets eagerly wait to watch the prices of denim, t-shirts, trousers and all the cotton clothing show a downward trend. Unfortunately, the current cost of clothing does not indicate that the buyers are benefitting from the cotton price decline.
There are some renowned international brands that have registered profits with this decline, following lower manufacturing costs, but these profits have been limited to retailers and manufacturers only. The profits that the apparel firms are registering from the cotton price dip are also largely fleeting, as the synthetics, other natural fibres like silk and blends are more in demand in comparison to cotton. There are some analysts who expect the demand for cotton to rise again, as the low prices are attracting more buyers and the reduced demand has also discouraged surplus production of cotton.
A research team from Cowen and Company also agrees that the decline in cotton price is a positive update for the apparel manufacturers, but the garment prices might not be affected by this. The reasons for unaffected garments prices being the annual revision of cost of labour in developing countries and the rise in compliance costs to continue with the outsourcing. These factors contribute to the rising apparel cost and negate the minor fall in cotton prices that could have resulted in lower costs of apparel. If at all, it has been estimated by the Cowen and Company that the prices of clothing will show an impact of declining cotton costs only by the second of half of 2015.
The current inclination of cotton price dip has been mainly towards the retailers and manufacturers of textile and apparel. The impact of this decline on apparel industry are being overvalued, as the final cost of a garment is inclusive of everything from raw material to cost of labour and production process. The cotton price will neither have a significant nor a lasting impact on the final product.