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Yarn Market

Cotton

Jim Phillips, Contributing Editor

S peculation earlier this year by many in the industry was that cotton could soar past $1 per pound in the not-too-distant future. Well into the second quarter of 2008, spot mill prices continued to increase substantially from week to week.

Since then, however, there has been a general leveling. Quotations for the base quality of cotton (color 41, leaf 4, staple 34, mike 35-36 and 43-49, strength 26.5-8.4, uniformity
81) averaged 61.62 cents per pound for the week ended August 7. Overall, the price is just over 5 cents per pound higher than at the same time last year and is down significantly from the first quarter of the year.

“A big reason why prices have stabilized again,” said one spinner, “ is that we’re just not buying as much cotton. With margins so thin to begin with, we couldn’t afford to make as many cotton products. We weren’t making any money on them.”

Quite a few spinners, as previously reported, have been able to pass at least some cost increases through to customers — but not enough to maintain margins.

“Now that the price of cotton has begun to stabilize, I’m sure we’re going to get some pressure to drop our prices,” said one Southeastern spinner. “But yarn prices have been artificially low for a long time. If we keep our prices stable and cotton continues to come down to mid-2007 price levels, it would put us about where we should be.”

Man-Made Material Price Increases
As cotton prices have come down recently, the cost of materials for many man-made fibers has soared — due largely to the hefty increase in petroleum prices. In just the past few weeks, a number of major manufacturers have announced price increases, including BASF, Dow Reichhold Specialty Latex, Celanese and Wacker. In almost all instances, the companies attributed the higher prices to marked increases in transport, packaging, energy and raw material costs.

Mixed Reactions
Regardless of whether the focus is on cotton, man-made or blended products, some spinners were not happy with the state of the market for the first six months of 2008. “There is a softness in the market, a kind of ‘wait-and-see attitude,” said one spinner. “When business is good, we run eight-hour shifts, six days a week. Right now, we’re running a full five-day schedule. We haven’t seen that sixth day in quite a while.”

Said another: “The demand we expected earlier in the year just hasn’t materialized. We’ve had some brief periods when things have picked up, but nothing has been sustained. We don’t expect the last part of the year to be markedly better.”

Specialty spinners, especially those that have a strong presence in niche markets or a strong export strategy, are more optimistic. “It’s been good so far this year — not outstanding, though,” said one specialty ring spinner. “I don’t know what the last half of the year is going to bring, though. With gas prices and other energy costs so high, people aren’t spending as much money. We are projecting business to be slow into the first quarter of 2009.”

With so much economic uncertainly, many spinners are hesitant to make optimistic predictions. “Right now, there are so many things up in the air,” said a North Carolina spinner. Will oil prices stabilize? What about inflation? There are lots of questions right now and very few answers.”

August 2008

Related Files:
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