Business Is Moving Sideways
James L. Lemons, Ph.D., Technical Editor
Several spinners reported that “orders are decent, but our margins are squeezed by current pricing.” The return to profitability is further hindered by many spinners having to meet the debt service associated with highly leveraged balance sheets. One major spinner expressed considerable frustration with his competition. “Everyone is overreacting to normal demand drops by cutting prices. We can keep some business, but when do we start turning a profit? We are tired of running for fun.”
Much of the excess capacity in the domestic market is gone, and a substantial amount of the inventory in the pipeline has worked its way down. Spinners report they are producing against orders. With some softening in the market, they are concerned with building inventory.
As one spinner indicated, “It is time to be careful right now. We have scaled back some of our manufacturing capacity over the last couple of months.”
The Good, The Bad And The Ugly
As the U.S. economy continues to falter, the dollar continues to weaken against other currencies. This has helped to make domestic yarns more competitive. However, a review of import data through June 2002 shows mixed results. When compared to June 2001 data, imports of category 300 carded cotton yarns are down, while combed cotton yarn imports are up. As one spinner reported, “We can’t chase prices on Pakistani yarns. If we cut our prices, they simply cut more — it’s an endless cycle.”
The recently enacted Trade Promotion Authority bill should provide some additional export opportunities to the Caribbean Basin, because it maintains the yarn-forward rule contained in the Caribbean Basin Initiative (CBI). The legislation also increases the caps for knit apparel and quotas for T-shirts beginning in October 2002.
Raw material prices continue to creep up. Although cotton prices are down more than 3 percent from the averages reported last month, they are substantially up from the averages reported six months ago. The OPEC nations, which control 40 percent of the world’s oil output, reported to the World Petroleum Congress that they would “maintain oil prices at levels that are fair and reasonable.” However, fiber producers are reporting increases in petrochemical prices.
With our current economic and political uncertainties, predicting consumer spending over the next quarter will prove to be very tricky. Retailers reported very disappointing results from back-to-school sales in a report released recently by the Federal Reserve. Some merchants are holding orders until closer to the holiday season to give them more flexibility in changing trends.
So What Now?
As one spinner reported, “Business is getting more impersonal — more price-driven. Fortunately, some customers are still looking for value-added yarn to help differentiate their product from the crowd.”
This type of thinking may lead spinners to modify their business strategies going forward. It is difficult, if not impossible, to be the low-cost producer of commodity yarns in a global market. The shift may be to more specialization and working with customers in product development — attacking the problem where they can be more responsive and deliver better service.
Editor’s Note: James L. Lemons, Ph.D., has joined the staff of Textile World as technical editor, Yarn Market. Lemons is president of the North Carolina Center for Applied Textile Technology (NCCATT), Belmont, N.C.
He obtained a B.S. degree in textiles from North Carolina State University (NCSU) and, while working on a M.Ed. at the school, was awarded a grant in the amount of $1,500 to conduct a five-month study about cotton yarn manufacturing costs and production rates.
Lemons also holds an M.B.A. from Virginia Tech and earned his Ph.D. from the University of South Carolina. During his career, Lemons has worked for J.P. Stevens & Co. Inc., Dan River Inc., Tultex and Kellwood Co., in addition to teaching at Virginia Tech and NCSU.
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