The global raw materials market has lived one of its busiest decades. Cotton, one of the main raw materials of the fashion industry, reached record highs in 2011 and again hit lows just three years later. The lesson that retailers took from these was that it is necessary to stabilize raw materials market and give it continuity over time. Part of the answer to this shift of paradigm is circularity.

Between 2010 and 2011, cotton was up the clouds. That year, prices of this raw material exceeded its historical highs, unbeaten since 1995. It was the spring of polyester and viscose: retailers designed collections based on these raw materials to help its margins before the rise of cotton prices.

Between December 2009 and the same month of 2010, the price of cotton increased by 140%. That increase drove up the prices of other raw materials. Wool increased its value by 40% in one year; silk, 100%; linen, another 40%, while manmade fibers increased it between 30% and 35%.

There was no specific cause explaining that escalation, but rather a set of events that pushed up its market value. Bad harvests in Pakistan, one of the cotton-producing countries, due to heavy rains that caused significant flooding in the country was perhaps the trigger. 

Another reason that drove this inflation was the increase in the demand of textiles from countries such as India, China or Brazil, emerging economies that at that time were in full swing from their middle class and an internal consumer market. In this sense, India, then the world’s second largest producer of this raw material, aggravated the crisis by restricting cotton exports to protect its textile industry.

The Asian country went from placing 1.4 million tons of cotton to 950,000 tons in the foreign market. This measure led several international organizations to raise their voice against the situation such as the American National Council of Textile Organizations (Ncto), Eurocotton, Istanbul Textile and Apparel Exporters (Itkib, in its acronym in Turkish) or Canaintex. Several governments also fought against this measure before the World Trade Organization (WTO).

China also stepped forward to defend against a shortage of product in the domestic market and initiated a policy of accumulating stocks intensively. Finally, at the beginning of 2011 India put an end to its restrictions on cotton exports, but the Asian giant kept its surplus retention strategy in place during the following years.

In March 2011, the price of cotton registered its highest rise, up 167.8% compared to the same month of the previous year, to reach the historical level of 229.7 cents per pound. In April 2011, prices began a new moderation period, with an interannual drop of 5.7%. The fall in demand and India’s decision to remove export limitations on this raw material caused prices to decrease in following months as quickly as they had increased.

This excessive increase had a direct impact on the margins of fashion companies and, especially, those linked to cotton, such as those specialized in denim. The shock wave of that rise in cotton reached the stock market values of the fashion giants, impacting especially negatively on the fashion retailers immersed in the price war.  

In March 2011, the price of cotton registered its highest rise, up 167.8%

The turbulence in the price of this raw material continued to hit retailers in the stock market, which in their results strived to point out their new strategies in diversification of raw materials to reduce dependence on cotton. H&M, for example, ended 2011 with a 15% drop in its net profit. In its annual report, the company explained: “It has been a very complicated year in the markets where we provide ourselves, where the increase in prices, mainly as a result of the rise in cotton, has led to an increase in purchase prices.”

Gap, on the other hand, shrunk the net income of that year by 17%; Benetton, that year began the procedures to go private that year, went from earning 120 million euros in 2010 to seventy million euros in 2011, while Abercrombie&Fitch sank its net profit by 15%.

Accumulation of inventory and falling prices

The consequences of that price escalation persisted in the following years. Uncertainty in the world cotton market was then generated by China. The Asian giant, which had initiated an inventory accumulation policy to protect its local textile industry, again distorted its price. The country also increased its imports to increase its reserves. In 2012, the US Ministry of Agriculture already warned that the global stock of this raw material would reach its highest value at the end of the year in 25 years by Chinese policy.

In fact, India came to block its cotton exports for the second time due to the voracity of China’s purchases and the fear of leaving the local textile industry out of supply. The massive accumulation of cotton by the Beijing Government made it the owner of a quarter of the world’s reserves, which accounted for the equivalent of 60% of annual consumption.

India blocked its cotton exports for the second time due to the voracity of China’s acquisitions in 2013

This accumulation of stocks alerted the sector that was contemplating the possible sale of these reserves, which would curb international trade in this raw material and stir its value again. Cotton, unlike other raw materials, has an expiration date and, the longer it is used, the more likely it is to be spoiled. Professionals in this field began to glimpse a new era of low prices.

Evolution of the price of cotton in the last decade

At the end of 2013, China began to release its cotton inventory and, in 2014, ended its policy of swelling its reserves. The volume that the Asian country accumulated became such that it was sufficient to supply the entire Chinese textile industry for more than a year.

At that time, the country already had more than half of the world’s total cotton reserves. The consequence of this new scenario was a sharp drop in production and a break in international trade. Another element that helped to push down the price of cotton was polyester, the synthetic fiber derived from the most abundant and economical oil, which was gaining prominence in fashion collections.

The next twist to the global cotton market was given again by China by increasing import tariffs

The next twist to the global cotton market was returned to China by increasing import tariffs to protect its cotton and introducing additional quotas. Stock accumulation policy and local production subsidies had pushed prices up, favoring cheaper and higher quality cotton imports. However, the measure was not enough to maintain local production and, in 2014, India took away the leadership as the world's leading producer of this raw material.

Sustainable cotton and other raw materials

In parallel to the roller coaster lived in the traditional cotton market, sustainable cotton began to gain strength in 2010. That year, worldwide sales from sustainable crops of this raw material reached 5.2 billion dollars, according to the Textile Exchange. A year later, sustainable cotton business generated 6.2 billion dollars. For the first time, fashion distribution giants were betting strongly on this type of cotton. In 2011, the main consumers of sustainable cotton on the planet were already H&M, C&A, Nike, Inditex and Adidas.

The largest manufacturers of synthetic fibers

As of 2015, fashion giants began to look for synergies to speed up in this regard. Kering and H&M acquired a stake in British startup Worn Again to accelerate the development of their technology for textile recycling and circularity. In fact, the trigger for textile research and innovation in the field of raw materials has taken a radical turn.

In a first phase, all the development in smart fabrics, conductive threads and technology applied to textile was paralyzed to overturn it in the search for new substitutes for natural and synthetic raw materials. However, in 2016 and 2017, sustainability addressed a second stage: circularity. The large distribution embraced this new system of the economy to reduce dependence on raw materials from natural crops and those derived from oil. Thus, in 2017, about 19% of the cotton used in the textile industry came from sustainable sources.

In the case of polyester, 14% that went to the sector was already recycled, and in viscose, 4.5% was lyocell, the most sustainable version in the production of cellulose textile fibers, according to a study by Textiles Exchange. Regarding polyester, the queen fiber of the fashion industry, in 2017 it reached a record production of 53 million metric tons. Of these, 7.42 metric tons were already made of recycled polyester. The bulk of this type of fiber comes from plastic bottles and the polyester itself for textile use.