Cheap clothes are out as cotton prices soar

The days of cheap clothes - the £4 pair of jeans and £2 T-shirt - could be coming to an end as the cost of cotton continues to rocket.

The cost has been sent spiralling by massive global demand, much of it from the powerhouse that is China, coupled with floods affecting some of the world's major producers of cotton.

In the UK some of the biggest fashion chains, including Primark and Next, have warned shoppers that there will be higher prices in stores. Jeans maker Levi Strauss and Hanebrand, which owns the Wonderbra brand, have also warned of higher prices, while another budget fashion chain, H&M, has raised the alarm over rising raw material costs.

Only yesterday Primark, famous for its cheap fashions including the £2 T-shirt and £4 pair of jeans for men, said profits for the first half of 2011 would be lower than last year because of the increase in VAT in the UK and rising cotton prices.

Flooding disasters in North Eastern China and Pakistan last year pushed up cotton prices by more than 700 per cent. The floods destroyed more than 4.25 million acres, affecting an estimated 25 per cent of the world cotton crop. In just one month the wholesale price of one pound of cotton surged from 10 cents to 83 cents, its highest level for 15 years.

Allen Terharr, executive director of Cotton Council International, said: "Cotton is 15 to 20 per cent of the textile component of what people are wearing. Consumption worldwide is now exceeding production and prices are going up."

Some industry analysts suggest that a T-shirt that sells for £7.99 could go up by £1, and a £50 pair of jeans by as much as £5 — and the increases could see retailers looking to switch to more man-made fibres.

A large part of the increased demand is coming from China, which increased cotton imports by 86 per cent in 2010. But what is unclear is how much of the price surge is down to speculative buying — and how much to actual shortages. Figures from the Commodities Futures Trading Commission show that the amount of speculative money pouring into cotton jumped to a five-month high at the end of January, a month when cotton prices rose by 30 per cent as more news about damage to crops was confirmed.

But the International Cotton Advisory Committee thinks the problem runs deeper than just money pouring into the sector.

It believes the price jump two years ago was caused by speculators, but blames the ongoing rises on very low world stocks of cotton, massive demand and a depreciation in the US dollar.