In the backdrop of an upswing in global cotton prices, apparel giants are seeking alternative ways to combat the soaring raw materials cost. Hanesbrands Inc. (HBI) has inked a deal with the Portland-based Naturally Advanced Technologies (“NAT”) to supply Hanes with a proprietary fiber that could substitute cotton, namely Crailar. The terms of the agreement were not disclosed.
For producing Crailar, the binding agent from flax that gives a stiff texture is removed with an enzyme wash. A textile fiber is produced that combines the strength and durability of flax with the softness and comfort of cotton. Crailar flax fibers are also said to shrink less than cotton, absorb moisture better and have increased dye uptake, which means they require fewer chemicals to achieve the same depth of color.
Yarns made from Crailar fibers can be used in knit, woven or non-woven fabrics or blended with other natural fibers to make apparels similar to those marketed by Hanesbrands.
Winston-Salem, N.C.based apparel manufacturer Hanesbrands Inc. made its first purchase of 10,000 lbs of Crailar in the first quarter of 2010 and after successful spinning trials announced a final evaluation phase in the second quarter of 2010. In December 2010, the companies announced additional product testing that made Hanesbrands purchase up to $375,000 of Crailar Flax fiber between December 1, 2010 and early 2011.
In January 2011, NAT and Hanesbrands announced a joint research partnership with the U.S. Department of Agricultural Research Service (USDA-ARS) to cultivate and evaluate the viability of various flax strains for producing Crailar. The project is being carried out in South Carolina and has an initial term of one year, with a renewal option of two additional years.
Global cotton prices have been on the rise recently, fueled by an accelerating demand for cotton in China coupled with the ban on cotton export from India. This came after a prudent decision by the Indian government to halt shipments of raw cotton for controlling the rise in domestic prices as well as to cater to domestic demand.
At the time when the collaboration between Hanesbrands and NAT was in process, cotton was only 60 cents a pound, but presently cotton is trading at about $2 a pound. However, NAT estimates that it will be able to provide its flax fiber for 90 cents to $1.25 a pound.
The Economic Times reported that soaring cotton prices have reduced export orders for India from the US and Europe by at least 20% for the fall season. Bumper spring harvest of cotton in U.S. (fall harvest is pegged at 19.2 million bales, an increase of 900,000 from the 2010 harvest) also could not offset the escalating global cost inflation of cotton balls due to replenishing global cotton stockpiles.
Many big apparel manufacturers like Gap Inc. (GPS) and J.C. Penney Company Inc. (JCP) are perturbed by the rising prices of garments, having to pay 30% higher as raw material cost to China.
Hanesbrands sources reveal that although Hanes has the exclusive rights to develop Crailar for undergarments and active wear, other apparel makers, notably denim manufacturers, are also eyeing the fiber for offsetting some of the impact of higher cotton prices.
Hanesbrands Inc.currently holds a Zacks #3 Rank with a short-term Hold rating.
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