The pandemic itself poses several different operational questions and challenges. For example, there are many different materials that go into making a good pair of jeans, including cotton, polyester and dyes and chemicals. This article seeks to explore disruptions in each one individually.
Cotton still plays a significant role in the denim industry when it comes to cost and consumption. At the start of the pandemic, commodity prices collapsed drastically, including cotton. But ever since then, the price of cotton has gone back up higher than its value before the pandemic in spite of the reduction in demand for garments and apparel. To understand this phenomenon, we need to understand that commodities do not purely run on fundamentals.
Theoretically, commodities such as cotton do well when global economies are growing in emerging market countries where higher growth rates are likely to result in an increase in demand for cotton clothing and cotton products as they grow wealthier.
Nevertheless, there are several non-crop related factors that drive cotton prices up and down. Some of these factors are related to a minimum support price (MSP) in India and China and the Federal Cotton Loan Program in the United States. Others are related to speculators foreseeing a decline in the US dollar’s value and therefore pouring money into commodities.
In addition, the Chinese Government has been stockpiling cotton — bought from the United States, Brazil and other origins. There have also been many weather-related disasters in cotton-growing countries like the United States and Pakistan. There have been hurricanes and fires in the United States and unfavourable weather conditions for cotton in Pakistan which resulted in a 50% reduction in crop size.
It is important to note that cotton has competing crops which include soybean and sugarcane. According to the ARL Commodities Market Report, 2020 both of these competing crops have been commanding much higher prices compared to cotton this year.
We predict that cotton prices aren’t going to go back down unless there is another major disruption in the industry, unforeseen by everyone.
Polyester is used in fibre form or filament. Polyester prices have been stable and supply has not been a problem. But the challenge with polyester is an environmental one. Micro-plastics have found their way into our food systems and are polluting our seas and water systems.
Brands today are trying to move away from poly-based materials but unfortunately, there aren’t as many natural substitutes. Currently, China produces two-thirds of the world’s supply. This impacts the US apparel markets greatly as 40% of all apparel imports have a polyester component (OTEXA).
How global apparel brands can prepare for this disruption in the short term is:
and in the long term:
In the past, China forced many indigo dye suppliers to shut down for environmental reasons. This created a substantial supply shortage where well-renowned indigo suppliers were unable to meet the demand and prices shot up. But since then, the environmental concerns have been addressed and indigo and other chemical supplies are on their way to gaining some sense of normalcy.
Nevertheless, it is alarming to see that China remains to be the only raw material supplier of indigo to the world. There is no other alternative that can compete with China and this has the potential to cause disruption in the near future. Today, every kilogram of indigo produced uses over 100 kilograms of petroleum.
Disruptions are here to stay and by the looks of it, we are too dependent on certain countries for certain materials. We need to work together to nullify these potential disruptions, and it should be noted that these changes and adaptations will not happen overnight.
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