Fashion fears price raise amidst oil surge

Fashion industry holds its breath. The sector is following closely the surge on crude oil prices, that in recent hours have reached its highest rise in thirty years. Fearful of any impact in their margins, fashion giants are scared of a rise in logistics prices in the short term. In the long term, the fear is that it might eventually impact in fashion’s main raw material: polyester.

An attack on a major hub of Saudi Arabia’s oil production last Monday has led to a shock in the raw materials market. About 5.7 million barrels have been taken out of the oil market a day, the biggest supply cutback ever.

In this scenario, the barrel of Brent jumped 20% on Monday. However, experts argue that the market can contain prices in the short and middle term because there is certain supply surplus and the United States has still strategic reserves to balance this rise. The situation would get worse if the supply problem persists and the price per barrel reached 100 dollars.

The first impact this will have in the fashion industry is an increase on the logistics costs, in the already challenging scenario because of protectionism. Being it a completely globalized sector, both in its supply as in its distribution, gas prices makes its transport more expensive.

On the other hand, experts from the fashion industry agree that, if oil prices keep rising, it will also impact on the raw materials that derive from it, like polyester. For the time been, the industry does not expect another shake-up in margins, like the one that caused the cotton crisis in 2011.

Even if it’s an oil derivative, polyester is made also with other chemical components and, until now, the evolution of one and other hasn’t have a direct correlation. In fact, the evolution of polyester has depended mostly on the price of other textile’s raw materials, particularly cotton.

Polyester prices depend more on cotton prices than on oil’s

The price of cotton is forecasted to keep going down, according to the last outlook made at the beginning of September by the International Cotton Advisory Council (Icac). This scenario might hold the prices of polyester in the middle term despite the rise of oil prices.

Polyester is the star fibre of the fashion industry. Since the 70’s, its production and consumption has kept growing. Between 2000 and 2017, its production tripled, according to Statista. Polyester demand in the fashion industry skyrocketed in 2011 because of the escalation of cotton prices.

However, this market didn’t seem to be touching the ceiling, until now. Syntethic fibers are expected to grow an average 5% per year until 2022, according to a report by Technavio made in 2018.

In this sense, the largest polyester producers are big industrial corporations. Two of them are China Petroleum Chemical, based in Shanghai and with over 341 billion dollars in revenue, or Reliance Industries, a holding with more than 58 billion dollars in sales.