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Ukraine Crisis, Cotton and Textiles Sector

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Seshadri Ramkumar, Professor, Texas Tech University, USA

Today’s invasion of Ukraine by Russia is creating a tailspin in the global markets, particularly in the energy sector. Crude oil price is trading about US$104 per barrel, which will certainly affect stock markets, commodity, and metal prices. More importantly, it will have impact on consumer psychic and their buying power, which is important for the global textiles sector.

Immediate reactions by the United State, EU, and UK have been by imposing economic sanctions against Russia, which is only going to harden. This will impact crude oil and natural gas prices as Russia is a major exporter of these commodities to EU nations like Germany. One may also swiftly see the strengthening of dollar, which will at least for the immediate future see higher prices for imports from the United States.

Cotton market which is experiencing a tight supply will see uncertainty and added volatility due to uncertain demand and ripple effects from higher energy prices. More importantly, as many EU countries depend on wheat and energy products from Russia, and Ukraine being the breadbasket for Europe, increase in prices of these commodities will influence the overall markets and consumer confidence.

“The market will be more volatile,” stated Velmurugan Shanmugam, General Manager of Aruppukottai, India-based Jayalakshmi Textiles. Jayalakshmi Textiles is a 100% cotton spinning mill with 72,000 spindles spinning fine count cotton yarns catering to home textiles market. India exports cotton home textiles to EU countries like Germany and crisis in that part of world will have impact on textile exports and consumption.

Cotton prices have been seeing an upward trend in recent months. In recent weeks, the expected invasion by Russia has been playing its part on commodity markets. In the past 20 days, mill delivered price for MCU-5 cotton has climbed from Rupees 78,000 per candy (356 Kgs) to its current level at 83,000 per candy (356 Kgs). With the current global situation, uncertainty will increase, added Velmurugan Shanmugam. As gas prices are expected to go up, consumers will pay more attention in buying textile items, which may have an impact on textile exports, added Velmurugan Shanmugam.

Textiles’ demand and prices not only depend on cotton and raw materials’ prices. Other factors such as regional peace and security influence consumers’ interest in buying items such as textiles which are heavily dependent on discretionary spending. Textile industry people while expecting high volatility in markets must carefully plan in stocking raw materials and work out transportation and operational costs.

With tighter economic sanctions on Russia expected soon, it is important to watch how the commodity and financial sectors will react and their impact on manufacturing and textile sectors.

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