Cotton yarn prices soar- Surcharges to go into effect

In an economic environment where the manufacturing sector is just getting back on its feet we now have the latest in a dissying array of major hurdles for apparel manufacturers. Over the past 5 months cotton prices have been increasing as world demand causes higher prices for USA cotton and the fiber ships to the highest bidders, mostly overseas. This has been balanced by the fact that much of the fiber sent to India and Pakistan winds up comming back to us in the form of yarn. However, both countries recently ceased exporting yarn back to the USA as their own domestic demand has outstripped supply. On the USA front, after years of desolate news of yarn mills closing, or being bought up, capacity has been reduced to 2008-9 consumption levels. Now that demand is increasing capacity is not there to support it. A good article from Pakistan is here
http://sappk.wordpress.com/2009/11/25/cotton-yarn-crisis/ and from India here http://www.commodityonline.com/news/India-trashes-tax-incentive-on-cotton-yarn-export-27594-3-1.html.

The net effect is that cotton yarn has become difficult to secure and delivery quotations are extending to 3-5 weeks. Prices from 5 months ago are up about 35%. Even commodity yarns like 18/1 open end are in near sold out positions at the two major mills.

As in house inventories are depleted the cost increases will inevitably find their way downstream to the customer level. More importantly, however, is the potential impact on deliveries. It only makes sense for Style Source to limit the longer term effect of current price increases by reducing in house inventory levels of fabrics and yarns so that as prices drop we can move more quickly to lower costs and prices. As we closely manage inventories we risk outages as yarn deliveries remain extended. This means you, the customer, need to be sure you are allowing more time for your orders to be processed. If you are working on a larger order it is best to provide us with a heads up to review positions and insure we are tuned in to your pipeline needs.

As a temporary measure we will be implimenting a 3% cotton surcharge on all orders that are being serviced from fresh inventories. Our basic fabrics have been drawn down and we anticipate the surcharges to begin phase in around June 1. Be assured we will phase out the surcharge as soon as prices moderate and inventories are replenished with lower cost yarns.