Cotton use stays high even as costs climb

	The PT10SS-3A model from Shanghai Yuan Fu is a pair of women’s pleated pants in 97:3 cotton-spandex. It comes in sizes XS to XXL and in cream or light purple. Price is $11 to $13.

Profit margins tighten as material expenditure growth outpaces price increases.

Despite escalating rates, suppliers of shorts and pants in China continue to adopt cotton for the majority of releases.

In the first quarter of 2010, exports in the line amounted to 620 million pairs worth $3.2 billion. Volumewise, 72 percent or 444.5 million pairs utilize the fiber at composition levels of at least 50 percent. This figure is 15 percent higher compared with the same period in 2009. It also reflects an increase in share from 68 percent.

Cotton costs have been on an upward trend since the second half of last year. But influencing factors go back to 2008, during which soaring crude oil prices boosted farmers’ expenditure for fertilizers, pesticides and agricultural film. When the financial crisis hit, demand for the crop plummeted. By December, only 60 percent of yield was sold at rates 30 percent lower than in 2007.

Unable to recoup outlay, growers reduced 2009 planting area by 15 percent. Coupled with climate problems, this brought down annual output by a similar ratio to 6.4 million tons.

As global economies recover and consumers return to spending, the limited fiber supply is stimulating rates.

Another challenge is higher transport expenses from Xinjiang, where one-third of China’s cotton is grown, to textile mills and garment factories in the coastal provinces.

The country has been importing to augment stock, mainly from India and the US. In January and February 2010, 265,460 tons of the fiber was purchased from India, 1,694 percent more year on year.

A decision to halt exports for five weeks from April 19, however, put the US as the top foreign source. China also procures from Uzbekistan and Africa.

Currently, the spot price for 328-grade cotton is 17,862 yuan per ton, nearly 40 percent higher than a year ago. Makers have increased product quotes as a result, but only by about 10 percent to avoid losing orders to competitors.

Profit margins are therefore narrowing for the majority of companies. These are SMEs that focus on OEM models and operate on gains of 15 percent at most.

To counter this effect, some suppliers are expanding manufacture to obtain economies of scale. Others are shifting their concentration to more lucrative garment lines such as tops and suits.

A few large factories are leveraging their design and export capability to strengthen ODM and OBM business. The strategy enables them to widen markups to between 20 and 35 percent, and have better control over pricing.

Several of these enterprises are acquiring established domestic trademarks in their target destinations to minimize expenses for brand building.

R&D efforts underscore cut and fit for both genders. Women’s shorts are being offered not only for the summer season, but for spring and autumn as well, when they can be worn over tights. Hot pants and looser versions with cuffed hems and paperbag waists are the best-sellers in the category.

Stovepipe and harem silhouettes are popular for full-length models.

The trend for men’s releases is cuffed shorts and drop-crotch pants.

Color is emphasized in women’s designs. The latest styles come in purple, pink, orange, sky blue and red. Easy-care treatments such as wrinkle-resistant and anti-fungal finishes are applied to men’s variants.

Material is the main price determinant. Cotton, linen, rayon and polyester are the commonly adopted textiles. A few upscale designs utilize silk and Tencel.

Fabric consumption affects quotes as well, so shorts and women’s versions are normally less expensive.

Low-end models start at $4 and can reach $9. They are made of polyester, rayon, blends of the two, or a mixture of polyester and cotton. Most shorts fall under this range.

Designs are in solid colors and have two side pockets. They may come with a belt in the same fabric or elastic webbing. The closure is a plastic button and a nylon or polyester zipper. Straight leg and baggy styles are available.

Midrange products top out at $14. Pure cotton and 98:2 or 96:4 cotton-spandex blends are the options for this segment. Most items are slim, tapered pants in full or cropped lengths. Several adopt pleated waists or cargo pockets. They are fitted with metal buttons and zippers. Some men’s versions boast functional treatments.

High-end models come in cotton, linen, silk, Tencel or mixtures of these fibers. They can be embellished using metal studs, rhinestones or fringe.

YKK zippers are adopted. A synthetic leather belt is sometimes included.

China is home to about 30,000 garment factories engaged in the production of women’s shorts and pants. The majority makes other types of clothing as well. More than 10,000 run year-long operations in the line.

At least 20,000 suppliers with average annual capacity of 600 million pairs manufacture men’s designs, which are mainly sent to the US, Russia and Japan. Most are based in Fujian and Guangdong provinces. In the former, Shishi, Jinjiang and Quanzhou are the key cities. A great number of Guangdong suppliers are in Guangzhou and Shenzhen.

There are also roughly 10,000 trading companies offering both styles. The industry base has been relatively stable during the past six months.

In general, small plants are run by up to 300 employees. Midsize companies hire 800 workers at most. Large makers maintain more than 800 personnel. The number of R&D specialists varies from 10 to 50.