By Rajendra Jadhav, Ruma Paul and Ashitha Shivaprasad

MUMBAI/DHAKA (Reuters) – A close to doubling in benchmark cotton futures to 11-year highs, arduous on the heels of a spike in freight and gas costs, is clobbering Asian attire makers whereas their world retail clients are reluctant to absorb the additional prices.

Losses have mounted for garment makers in Asia, among the many area’s prime employers, with some smaller models suspending operations, rendering hundreds jobless, undermining a restoration from the pandemic and posing a contemporary problem for policymakers already battling excessive inflation.

To stay viable, some yarn and garment makers are even changing cotton with cheaper artificial material.

“Our factories are operating at full capability. However at what costs? We’re hardly making any earnings,” stated Siddiqur Rahman, managing director of Dhaka-based Sterling Group, which provides to manufacturers resembling H&M and Hole Inc (NYSE:).

An unsure outlook for demand from Europe amid the Russia-Ukraine conflict has added to the woes of attire makers in Asia – dwelling to the world’s prime garment exporters, China and Bangladesh.

Bangladesh exports greater than 60% of the clothes it manufactures to Europe, Rahman stated.

(Graphics: https://fingfx.thomsonreuters.com/gfx/ce/zjvqkgmgavx/GlobalCottonPricesJune2022.png)

In India, world’s prime cotton producer, a number of small attire makers are struggling to fulfil orders from three months in the past, when cotton costs have been round a 3rd lower than present ranges.

“Many small models have stopped taking new orders,” stated Ashok Juneja, president of India’s Textile Affiliation.

India’s cotton costs have greater than doubled in a 12 months after rains hit harvest.

World costs surged 70% over the interval, scaling the best since 2011 in Could, with analysts predicting extra positive factors amid drought injury to output in prime exporter the USA and a restoration in China’s demand as COVID-19 curbs ease.

In a double whammy for garment makers, “consumers are usually not keen to lift costs”, stated Ravi Sam, managing director at Adwaith Textiles, an Indian exporter. “They’re additionally unsure about summer season demand, particularly in Europe,” he added.

In southern India, which accounts for many of the nation’s textile exports, spinning mills in Could determined to cease producing yarn and procuring uncooked cotton, the South India Spinners Affiliation stated.

The shutdowns are arduous for trade employees as many have been unemployed throughout COVID lockdowns.

“Almost 40% of the mills right here have been shut since they’re financially unviable,” stated Duraisami, who goes by only one identify and not too long ago misplaced his job at a textile mill within the southern state of Tamil Nadu.

Like Duraisami, hundreds within the space have misplaced their jobs in Could, the state authorities has stated.               

CHEAPER POLYESTER

Asian garment makers, which additionally rely Walmart (NYSE:) Inc and Nike (NYSE:) amongst their clients, rely closely on Europe and the USA for exports of ready-made clothes.

(Graphics: https://fingfx.thomsonreuters.com/gfx/ce/zgpomeleqpd/TopCottonProducersExporters.png)

Whereas demand rose within the first quarter because the world emerged from the pandemic, contemporary China COVID curbs and better gas costs amid the Russia-Ukraine battle stifled it.

Transport prices have quadrupled from pre-pandemic ranges and world manufacturers are usually not absorbing extra prices, Rahman stated.

“The producers are bearing the burden,” he stated.

To chop bills, some mills are utilizing extra artificial fibre, which may value $0.60-$1 a pound versus $1.4 for uncooked cotton.

“From what we hear from the mills in Asia, they’re growing spinning ratios in favour of polyester,” stated Rogers (NYSE:) Varner, president of Varner Brokerage in Cleveland, Mississippi.

However this swap has limitations given contractual commitments to ship a sure high quality of cloth.    “There shall be some alternative … however you possibly can’t simply exchange one thing since you do not need to pay for it,” stated Louis Barbera, companion and analyst at VLM Commodities Ltd.

TAILWINDS

Prices, trade members say, are unlikely to ease quickly.

Costs rose at the same time as lockdowns harm demand from China, which accounts for a few third of worldwide cotton consumption, and they’re going to climb additional because the nation resumes shopping for, a Singapore-based vendor with a world buying and selling agency stated.

For now although, China’s demand is bleak. Textile models are sitting on practically a month’s inventories of yarn and material, versus the standard 10-15 days, a China-based dealer stated.

About 400,000 tonnes of Xinjiang cotton are getting used monthly, half of year-ago ranges, the dealer added.

However with the tip to a strict lockdown in Shanghai, China’s largest metropolis, at 1600 GMT on Tuesday, or midnight regionally, trade gamers see demand enhancing.

Sizzling climate in Texas, which accounts for over 40% of the U.S. output, must also present a tailwind for costs.

“If we don’t get … a number of occasions of rainfall in west Texas, cotton costs will surpass present ranges,” Barbera stated.

This might ultimately elevate attire costs, including to inflationary pressures.

“I believe cotton costs are rising all the best way to the retail retailer. Sooner or later folks will simply determine they can not or is not going to purchase,” stated Keith Brown, principal at commodity agency Keith Brown and Co, Georgia.