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Yarn Market

Consumer Confidence Spurs Increased Demand

Jim Phillips, Yarn Market Editor

Despite the tumultuous start to 2013 — with the rollback of payroll tax cuts and the barely avoided fiscal cliff — consumer confidence in the economy is on the uptick.

According to a preliminary index of consumer sentiment by Thomson Reuters and the University of Michigan, consumer confidence in February was at a three-month high. Overall, consumer confidence over the past few months has been higher than at any other time in the past five years.

Correspondingly, retail sales are ahead of projections. In January, retail sales in the United States rose for a third consecutive month, indicating that consumers are continuing to spend, even though many have smaller paychecks as a result of an increase in withholding taxes.

What this means for yarn spinners is that the favorable business conditions enjoyed over the past six months are likely to continue, at least for the short-term.

"We remain optimistic about our business," said one spinner. "At this point, we feel almost certain that demand will continue to be strong well into the second quarter. If consumers continue to loosen their purse strings, it could end up being a very good year for our industry."

Ring-spun yarns are in high demand, as has been the case for much of the past year. "It's hard to find a position in ring-spun, but not impossible, which is one reason we haven't seen a huge bump in prices," said one yarn buyer. "Obviously, we don't have the production in this country we had a few years ago, so it takes less of an uptick in business to create a backlog."

Open-end (OE) yarns are also more in demand than in the past few years. "Part of this is a result of the high demand for ring-spun yarns," said one yarn broker. "Another part is that spinners are piggybacking OE sales to ring-spun and giving price incentives to customers who purchase both."

Added another spinner: "It is a seller's market right now. This is especially true in ring-spun, since there is such a limited supply right now. Overall, our business has been good since the second quarter of last year. There was a little slowdown at the start of the year, as people were getting a bearing on their inventory positions for the new year. But, overall, our business is at least as strong as it was back in the fourth quarter of 2012, and that was a good quarter for us. Prices are stable. We are keeping a close eye on cotton prices, which, for the most part, have been relatively stable for some time. There are minor decreases and increases, but nothing like the wild fluctuation we had several years ago. For the most part, most of our new business is being written with the current cotton cost in mind."

Cotton Prices Stable, China's Cotton Imports Grow
For the week ending February 14, quotations for the base quality of cotton — color 41, leaf 4, staple 34, mike 35-36 and 43-49, strength 27.0-28.9, uniformity 81.0-81.9 — in the seven designated markets measured by the U.S. Department of Agriculture (USDA) averaged 76.52 cents per pound, down slightly from 76.36 cents last week, and from 84.83 cents reported the corresponding period a year ago.

However, several spinners expressed some concern about the amount of cotton China is importing. The Chinese government has kept domestic cotton prices artificially high, and it is often cheaper for mills in China to use imported cotton. As a result, the USDA has revised its estimate of cotton exports to China in 2013, from 12.5 million bales to 14 million.

Cotton Incorporated, in its Monthly Economic Letter, pointed to China as the largest influencer of future price direction. "The most important factor for future price direction remains Chinese government policy," the newsletter reported.

The government of China has purchased 28.3 million bales for its reserve program, which accounts for nearly 85 percent of the current forecast for the Chinese harvest — 34 million bales. "With so much of the crop already being withheld from the market," Cotton Incorporated reports, "the question of whether the 35.5 million bales of Chinese mill demand will be met through releases from reserves or through imports is a major source of uncertainty."

"There is obviously a cause-and-effect scenario in play, here," said one spinner. "There is some concern that increased consumption of U.S. cotton in China could lead to cotton shortages by year's end. And if that happens — and this is a big if — you could be looking at a repeat of the situation of a few years ago, where panic buying of both raw cotton and cotton yarn drove prices higher than the market could support."

Over the past few months, Textile World has reported a resurgence of interest in Made in USA products. This subject will be explored in greater detail in an upcoming column. But a recent development by the U.S. Department of Commerce is likely to add momentum to the pilot programs currently underway by several retailers. On February 15, the Office of Textiles and Apparel (OTEXA) added a Made in the U.S.A. Sourcing Database to its website — located at otexa.ita.doc.gov/MadeInUSA.htm — which allows companies to register as U.S. suppliers and provides a search engine by which customers can locate U.S. companies.

February 20, 2013

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