With cotton prices soaring to $2 a pound amidst a perfect storm of a fierce rebound following the global downturn and a shortage of the raw cotton, cotton mills are struggling to secure cotton bails in the markets ahead of the exchange deadline.
While clothes manufacturers have threatened to put up prices to compensate, they may find this difficult to do with the high levels of unemployment and so many are expecting their margins to be hit instead.
While the problem is a result of a real shortage, the problem is being exacerbated by the transactional nature of the cotton market.
Speaking to the FT, Robert Antoshak, managing director at Olah, a US-based denim maker, said: “The unknown has bred a psychology of blind panic in the market. You are getting the whole supply chain elevating prices more than you would see based on simple economics.”
This surely creates a case for upstream vertical integration by large clothing manufacturers that could remove the transaction upon transaction price elevation that is bound to hit their profits this year.