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Wal-Mart Supplier Moves to Short-Term Deals on Cotton Volatility

Alok Industries Ltd. (ALOK), an Indian supplier of textiles to Wal-Mart Stores Inc. and Target Corp. (TGT), cut the length of its sales contracts to about three months from one year after volatility surged in the cotton market.

“Customers want to pay according to the prevailing cotton prices,” Alok Agarwal, the chief executive officer of Alok’s international unit, said in a telephone interview from New York. “It is very difficult to evaluate the cost of cotton on a long- term basis.”

The 100-day historical volatility for cotton futures traded in New York jumped to 46.6 percent yesterday, the highest since January 2009, data compiled by Bloomberg show. Prices have more than doubled in the past year as adverse weather damaged global crops and economic growth lifted buying from mills in China, the world’s biggest user.

“We could see an increase in prices again,” Agarwal said. Demand seems to remain strong, he said.

Cotton for May delivery gained 5.1 cents to $2.057 a pound yesterday on ICE Futures U.S. The commodity touched a record $2.0893 on Feb. 18.

Mumbai-based Alok is selling its textiles to clients with contracts based on cotton prices in the range of $1.80 to $1.90, Agarwal said. The retail price of a towel may rise by as much as 40 percent because of cotton jumping to above $2 from $1 in September, he said.

Costs may climb for U.S. retailers including Gap Inc. and J.C. Penney Co. Apparel manufacturer Olah Inc., a U.S. company which supplies Gap, said last month it raised prices for “several products.”

Higher cotton prices are also prompting several companies to use more man-made fabrics, Agarwal said. The commodity’s share of the global textile market will shrink to 20 percent by 2020 as mills switch to polyester and other chemical fibers to remain profitable, according to the International Cotton Advisory Committee.

“Since we are a large polyester manufacturer, it is natural to increase usage of man-made textiles,” Agarwal said, without giving details.

To contact the reporters on this story: Debarati Roy in New York at droy5@bloomberg.net;

To contact the editor responsible for this story: Patrick McKiernan at pmckiernan@bloomberg.net.

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