David Fickling
You might think that missiles flying over the Strait of Hormuz are a world away from your wardrobe full of fur jackets, leggings and trainers.
Of course, that couldn’t be further from the truth. Most of your wardrobe is made of oils, in the form of polyester, nylon, spandex and other synthetic fibers.
While the ripples from the oil shock spread most quickly through the prices of petrol, diesel and airline tickets, they have been quietly spreading through the clothing business, too. Better value clothes — think a $1 pair of tights from Shein, or a $15 jacket from Temu — are more susceptible.
As was the case with toilet paper during the COVID-19 pandemic, and with drivers filling their car’s fuel tanks early on reports of US and Israeli attacks on the Middle East, the first sign of a supply shock is often panic buying.
So far, that has been good news for some of the petrochemical companies that supply the fashion business. Tongkun Group, which produces about 18 percent of the world’s polyester fiber, expects net income to triple from a year earlier in the six months to June.
This is possible because textile companies, fearing disruption, are bidding up the cost of their products, even as they operate through raw materials purchased when oil prices were low. Polyester futures in China rose 25 percent in March to their highest level in nearly four years.
Those who dismissed sustainability initiatives as meaningless nonsense may now wish they had been willing to address the issue.
Others are doing worse. Shares in Hengli Petrochemical have fallen by almost a third so far this year. The company refines crude oil into polymer resins and fibers, and supplies to other companies such as Tongkun, and has been cutting production as supplies have dwindled. China’s output of synthetic fibers in April fell 11 percent from the previous month to the lowest level since 2024.
Even Tongkun is slipping on thin ice. Using short-term bank loans and prompt payments from customers to finance its working capital, it relies on a flawless supply chain to avoid cash shortages. The conflict in Iran threatens to give us a chance in that process.
These issues can get worse before they get better. Compared to gasoline and diesel, primary plastics are easier to store, in warehouses, spools and sacks. That means there is slack in the shock absorption system, at least in the short term. The layoff of Chinese polymer production has been one of the main ways the world economy has been able to withstand a loss of about 20 percent of raw materials. But with shipments through the Straits still at low levels, and releases from the government’s petroleum reserves dwindling, that respite won’t last forever.
Those who dismissed sustainability initiatives as meaningless nonsense may now wish they had been more serious about the issue. The best protection against fuel supply disruptions is to rely on a range of alternative materials, such as recycled fibres.
That means Zara owners Inditex and Hennes & Mauritz may be in a better position than Uniqlo-owner Fast Retailing to ride out the disruption. Almost all of their polyester comes from recycled materials, compared to less than half of the highly engineered functional fabrics that Uniqlo specializes in.
Using natural fibers like cotton is another alternative, but the industry is not immune to conflicts in the Straits. India is the second largest producer of fiber, and depends on the Gulf for supplies of natural gas and urea to make fertilizers.
While that has not yet reached peak production, market conditions are already tense: Cotton prices hit a two-year high in May, and world inventories are heading for their lowest levels in at least a decade.
Fashion brands don’t just use petroleum to make their clothes and grow natural fibers. They also burn it to move materials and finished products around the world. Every time you order a product from Asos or Temu, you are essentially booking it on one of the planes that connect the manufacturing centers of the clothing business in Asia and the world.
Zaragoza, a city in northern Spain whose airport does not see passenger traffic, is Spain’s third largest hub for air traffic, thanks to Zara’s nearby logistics hubs. Transportation costs had a “bigger impact” on margins than the cost of plastic materials, Crocs Chief Executive Officer Andrew Rees told investors in April — and Crocs is likely to be the end of plastic dependency.
It may take some time before the prices displayed on the hangers are affected. Squeezed margins are more likely to be seen in the year to March 2028 than in fiscal 2027, according to Paul Vogel, chief financial officer of VF Corp, which owns the Timberland and North Face labels.
When they do, however, it’s likely to be long-lasting. Shoppers who are striving to reduce their use of single-use plastics should look in their wardrobes.
Your largest pile of disposable polymers may be clothes you bought online and never wore.
David Fickling is a Bloomberg Opinion columnist covering climate change and energy. Previously, he worked for Bloomberg News, the Wall Street Journal and the Financial Times.
Bloomberg
