The price of cotton reached an all-time high on Friday, reflecting insatiable appetites from textile mills and raising concerns about more expensive garments.
New York cotton futures hit $1.1980 a pound on the ICE Futures US electronic marketplace, the highest nominal price in the 140-year history of the exchange and its predecessors. In real terms the price of cotton remains less than a third of levels touched in 1973.
The fibre has soared 48 per cent this year as resurgent demand and supply disruption created a short-term squeeze.
Textile mills in China, the world's largest consumer, are using more cotton this year as the world economy recovers. Bad weather, however, has reduced its cotton harvest. This has sent mills streaming into world markets, with cotton imports more than doubling so far this year compared with 2009.
From a consumption standpoint, they are the elephant in the room, Jordan Lea, president of the American Cotton Shippers' Association, said of China.
Devastating floods in Pakistan have also damaged crops in the world's fourth largest cotton grower, while higher prices are stoking worries that India, a main exporter since adopting genetically modified plants, will extend an export ban.
As a result, world cotton stocks are expected to fall 5 per cent this year to their lowest levels in 14 years.
The surge in cotton prices could end an era of cheaper clothing, popularised by brands such as Zara and H&M, industry executives said. While the impact was likely to be muted on clothes with high mark-ups, such as jeans, it could be more noticeable in budget items such as underwear, they said.
Next, the popular UK-based clothing retailer, shocked competitors last month by warning of price rises of 5-8 per cent next year. For 2011 we are exploring significant product cost price pressure from around the world, it said.
An executive from a rival company added: There are strong pressures on the import prices area.
But industry executives said the surge in cotton prices would stop the disinflation seen in the clothing sector since the late 1990s, rather than reverse it. Cotton's price rise comes against a backdrop of rising commodity, and especially agricultural, prices as the dollar weakens. The Reuters-Jefferies CRB index, a basket of raw materials, hit a two-year peak high this week.
The situation has been a boon for cotton farmers, who for years had been tempted to abandon cotton for more profitable crops such as corn and soyabeans.
Cotton's rise has revived anger against speculators. China's National Development and Reform Commission said this week:The hype of speculative capital has increased the cotton price fluctuations.
A commentator on the China Cotton Association's website also warned: Those who are increasing cotton futures are those who hate the country to be peaceful. There will be serious social problems if increasing prices aren't stopped.
