The Rupp Report: The Race For Fine Cotton

Around the globe, one trend has been obvious over the past few years: Everybody wants more
quality, and, at least, for less money. This is especially the case for textile products, such as
apparel. Today, most of the commodities are still made with cotton, or in blends with an important
amount of cotton. And as everybody knows, high-quality textile products can only be manufactured
with high-quality cotton.

Egyptian Cotton

So, the race is on. According to the Bremen Cotton Exchange, the production of high-quality
cotton will shrink in the future. Egyptian extra-fine cotton production is projected to drop by 38
percent in 2008-09 to 141,000 tons. This would be the lowest production level in more than a
century. This production drop is driven by a fall in planted cotton area because of the lower
extra-fine cotton prices received in 2007-08 and competition with food crops. Production of
extra-long-staple cotton is expected to fall by more than half to 19,000 tons, while production of
long-staple cotton is projected down by one-third to 122,000 tons. As a result of lower production
in Egypt, both consumption and exports of extra-fine cotton are expected to decline.

Pima Cotton

Production of Pima cotton in the United States is also forecast significantly down in
2008-09 to 109,000 tons, due to limited irrigation water resources and competition from alternative
crops. US exports could drop to 117,000 tons as a result. Production in Xinjiang, China, is also
expected to decline by 18 percent to 125,000 tons, as a portion of extra-fine cotton acreage could
switch to upland cotton or other crops. In spite of large beginning stocks, Chinese imports of
extra-fine cotton could remain significant in 2008-09, as consumption of extra-fine cotton in
Mainland China is expected to remain stable.

Lowest World Production Since 2001

Overall, world extra-fine cotton production is expected to decrease by 27 percent to 548,000
tons in 2008-09. This would be the lowest production level since 2000-01, when world production
reached 528,000 tons. Consumption of extra-fine cotton in producing countries is forecast slightly
down in 2008-09 to 481,000 tons, whereas exports of extra-fine cotton are forecast down by 32
percent to 270,000 tons. In producing countries, extra-fine cotton production and imports combined
are projected lower than total use, consisting of mill use plus exports. As a result, ending stocks
in producing countries are expected to decline by 22 percent to 223,000 tons in 2008-09.

It will be very interesting to see how the markets will react in the near future to this trend.
It means most likely another rise of raw material prices, especially for cotton. No wonder
investments in man-made fiber plants are increasing. However, rising oil prices are also pushing up
the price for this raw material. For decades, the textile industry has been the first segment of
the global economy to be hit by market problems. But also for decades, the textile industry has
been used to being very flexible and clever to solve these problems. May the forthcoming ITMA Asia
+ CITME 2008 be the first step to finding solutions for today’s challenging market.

July 22, 2008