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Yarn Market
James L. Lemons, Ph.D., Technical Editor

Business Is Bad But Better Than Expected

James L. Lemons, Ph.D., Technical Editor

Y arn prices have declined from the previous reporting period. As one major spinner indicated, “ Prices have dropped because everybody is trying to work down their inventory before the end of the year.” Customers seem to be taking advantage of the current pricing. A sales executive said, “Our business is bad — however, it is not as bad as we anticipated. We are getting some orders from customers we haven’t heard from in a while.”

At its December meeting, the Federal Reserve decided to keep interest rates at their current level. Therefore, the housing sector continues to boom. However, buyers are filling their homes with imported furniture, appliances and, of course, textiles.

Al Broaddus, president of the Federal Reserve Bank of Richmond, Va., speaking at the Charlotte World Affairs Council, indicated that the US economic recovery might not get much help from major trading partners any time soon. In fact, he said, “Global economic prospects have to be counted as a negative in the US outlook.”

Domestic yarn spinners hope he is wrong. Several larger spinners indicate they are counting on exports to increase significantly in 2003. Specifically, they are looking to increase sales anywhere from 50 to 70 percent in the Caribbean Basin. A number of respondents said they were encouraged as a result of the Cotton USA Tour that was coordinated by the Cotton Council International (CCI) for apparel manufacturers located in the Caribbean Basin (See “ TW News,” TW , November 2002).

What? No Tariffs!

The US Customs Service constantly points to China as the source of most smuggling and transshipments. Beginning in 2005, China will no longer face quotas. Many retailers contend this should effectively end the incentive to smuggle goods.

The quotas will go away, but the tariffs hopefully will remain. However, the current administration has proposed to the World Trade Organization (WTO) a sweeping plan that would cut tariffs on consumer and industrial goods to 8 percent by 2010, then totally eliminate tariffs by 2015. As one spinner said, “The tariffs are our last line of defense — we can’t keep signing these trade agreements to lower tariffs — they need to come down to our level of tariffs.” As one US Customs official said, “If the textile industry is successful in keeping the tariffs in place, we know that smuggling will continue through countries with free-trade agreements such as Mexico and Canada — there is always going to be a reason to smuggle.”

The Bush administration feels this proposal is a way to push forward the global trade negotiations that started last year in Doha, Qatar. The CEO of one spinning operation said, “This is nothing but an outright gift to China — at the expense of our employees.” The American Textile Manufacturers Institute (ATMI) recently reported that Chinese textile and apparel exports to the United States have increased by 87 percent since China joined the WTO. Imagine what this dramatic increase would be in a world with no quotas and no tariffs!

China invested $2.5 billion dollars in textile machinery in China in 2001, with spinning equipment accounting for some $1.0 billion of this investment. The use of cotton by Chinese mills rose to 26.75 million bales due to this strong growth in yarn production. According to a report issued by the United States - China Chamber of Commerce, “China has become the world’s manufacturing superpower.” It is clear that membership in the WTO was the cornerstone of China’s move from a planned economy to a market-driven system.

On the other side of the equation, China’s 1.2 billion inhabitants have a total purchasing power equivalent to that of the United States. This would seem to provide an opportunity. However, countries across the world say access is still too restrictive. The Chinese are exporting more than $100 billion worth of goods to the United States while US manufacturers are exporting only $20 billion worth to China. State-controlled businesses continue to dominate the Chinese economy; however, there are now more than 2 million private businesses that employ 27.1 million people with more than $217 billion in capital assets.

Clearly, a different business strategy is required for our domestic industry. Spinners must be in a position to adapt quickly to changing market requirements and concentrate on product differentiation. Can the industry meet these challenges? Only time will tell.


January 2003