Garment firms in a fix over cotton price surge
Shoppers may have to pay more for clothes as rising cotton prices are hurting textile and garment manufacturers.
Manufacturers say the price of the commodity has risen so much and so fast in the past few months that their profit margin has narrowed sharply.
A merchandiser with an apparel sourcing firm in Lai Chi Kok said she tried to place orders with textile and garment manufacturers but was either told there was insufficient stock or prices would be raised substantially to offset higher material costs.
'It was a nightmare in the past few weeks. Some cotton suppliers in Shandong ignored contracts and refused to deliver the commodity,' said the merchandiser, who asked not to be named.
She told of one manufacturer who took a briefcase of cash to buy cotton, but returned empty-handed because the price was raised on the spot.
Soaring commodity prices have added to the woes of operators in the Pearl River Delta, known as the factory of the world, following the recent spate of labour issues including wage increases, manpower shortage and strikes for higher pay and better welfare.
Some textile manufacturers said mainland cotton prices had risen about 58 per cent to 19,000 yuan (HK$21,665) per tonne last week from October last year partly because of lower imports and dwindling supply from key production regions such as Xinjiang and Shandong.
A United States government index tracking cotton spot prices showed average prices jumped 22.3 per cent to US$80.65 per pound on Friday from a trough in February.
Some economists blamed higher cotton prices on reduced production in the US, China and India - which controlled a combined 70 per cent of the world's supply - which coincided with a sharp recovery in demand after the global financial crisis.
This forces some manufacturers to pass on some of the increased costs to customers.
Pacific Textiles Holdings, one of the largest Hong Kong-listed fabric makers and a key supplier to fashion brands such as Uniqlo and Calvin Klein, felt the impact of higher cotton prices, according to the group's chief executive, Bill Lam Wing-tak.
'We want customers to share some of the extra costs, but they don't want to,' said Lam, who runs factories in Panyu, Guangdong, and Sri Lanka. 'Negotiations are tough, we are tussling.'
Rising material costs have a rippling effect on lower stream production, which jack up fabric and garment prices.
Leung Yin, a Hong Kong owner of jean and casual wear maker BMC in Guangzhou, said fabric cost at least 10 per cent more per yard last week.
'Some production is suspended because we are bargaining with our customers for higher prices, but they refused to co-operate,' Leung said. 'There are orders, but we manufacturers cannot afford to swallow extra costs entirely.'
Lam expects cotton prices to drop in October when new crop is available.
China's producer prices, a gauge of prices at factory and farm gate, rose a more than expected 7.1 per cent last month and 5.9 per cent in the first five months of this year, according to the National Bureau of Statistics on Friday. Consumer prices also rose a steeper than forecast 3.1 per cent last month, overtaking the central government's target of 3 per cent growth this year.