Retailers under the cosh as cotton hits 15-year high

Clothing retailers, hit last week by a raft of disappointing economic data, were left reeling again yesterday when cotton prices exceeded the $1-a-pound barrier for the first time in 15 years.

Contracts for December delivery jumped by nearly 4 per cent to $1.0198 in New York yesterday, and were later matched by prices in Asia. The increases are the market's reaction to limited supply, largely as a result of the devastating floods that have hit a number of countries in South Asia in recent weeks, strong demand, and inventories being run down.

Longer-dated and more heavily traded future contracts for delivery in May next year made even larger gains.

The Department of Agriculture in the US, which acts as the benchmark for crop markets, has forecast that cotton inventories around the world will fall in 2010-11 to 45.4 million bales, the lowest level for 14 years.

"This is the perfect storm for cotton prices," said Michael Haigh, head of commodities research at Standard Chartered.

"You've almost got a check box of factors: demand, supply and inventory. These factors are all moving in the same direction, justifying the current market prices. We don't see any correction in the short to medium term."

Already battling against worrying sales figures, fragile consumer confidence and next January's VAT increase, the cotton price gains will come as a blow to several of the UK's biggest high-street clothing names.

In recent weeks, Associated British Foods (owner of Primark), Debenhams and Next have all warned that rising cotton prices are likely to push up prices at the tills.

"For 2011 we are experiencing significant product cost price pressure from around the world. The price of cotton has increased by 45 per cent since this time last year, which is pushing up fabric prices," said Lord Wolfson, chief executive of Next.

"We believe that selling prices of like-for-like product will rise in the region of 5 per cent to 8 per cent."

The spike in cotton prices will also have been noted by the Bank of England's Monetary Policy Committee. Minutes from the MPC's last meeting, which will be published tomorrow, are expected to show some dissent over this month's decision to keep interest rates at a record low 0.5 per cent, especially with the Consumer Price Index at 3.1 per cent in August, still well above the Bank's 2 per cent inflation target.

Last week, the quarterly inflation expectations poll published by the Bank showed that consumers are expecting a 3.4 per cent hike in inflation in the next 12 months, with increased retail prices a factor.

But despite the gloomy picture painted by Lord Wolfson, the British Retail Consortium, which represents the interests of the retailing industry, has sought to play down the risk of rising cotton prices being passed on to the consumer.

"Of course, this comes as an added pressure, but retailers are highly competitive and will try their best to minimise the impact on consumers," said Krishan Rama at the BRC.

The cotton price jump comes ahead of Friday's emergency meeting of the United Nations' Food and Agriculture Organisation to discuss rising soft commodity prices.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Selby Jennings: VP/SVP Credit Quant- NY- Investment Bank

Not specified: Selby Jennings: VP/SVP Credit Quant Top tier investment bank i...

Selby Jennings: Quantitative Research | Equity | New York

Not specified: Selby Jennings: Quantitative Research | Global Equity | New Yor...

Selby Jennings: SVP Model Validation

Not specified: Selby Jennings: SVP Model Validation This top tiered investment...

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

Day In a Page

Aren’t you glad you didn’t say that? The worst wince-and-look-away quotes of the year

Aren’t you glad you didn’t say that?

The worst wince-and-look-away quotes of the year
Hollande's vanity project is on a high-speed track to the middle of nowhere

Vanity project on a high-speed track to nowhere

France’s TGV network has become mired in controversy
Sports Quiz of the Year

Sports Quiz of the Year

So, how closely were you paying attention during 2014?
Alexander Armstrong on insulting Mary Berry, his love of 'Bargain Hunt', and life as a llama farmer

Alexander Armstrong on insulting Mary Berry and his love of 'Bargain Hunt'

From Armstrong and Miller to Pointless
Sanchez helps Gunners hold on after Giroud's moment of madness

Sanchez helps Gunners hold on

Olivier Giroud's moment of madness nearly costs them
A Christmas without hope: Fears grow in Gaza that the conflict with Israel will soon reignite

Christmas without hope

Gaza fears grow that conflict with Israel will soon reignite
After 150 years, you can finally visit the grisliest museum in the country

The 'Black Museum'

After 150 years, you can finally visit Britain's grisliest museum
No ho-ho-hos with Nick Frost's badass Santa

No ho-ho-hos with Nick Frost's badass Santa

Doctor Who Christmas Special TV review
Chilly Christmas: Swimmers take festive dip for charity

Chilly Christmas

Swimmers dive into freezing British waters for charity
Veterans' hostel 'overwhelmed by kindness' for festive dinner

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

Yazidi girls killing themselves to escape rape and imprisonment
Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

Ed Balls interview

'If I think about the deficit when I'm playing the piano, it all goes wrong'
He's behind you, dude!

US stars in UK panto

From David Hasselhoff to Jerry Hall
Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

Grace Dent's Christmas Quiz

What are you – a festive curmudgeon or top of the tree?
Nasa planning to build cloud cities in airships above Venus

Nasa planning to build cloud cities in airships above Venus

Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect