Outlook For 2010: Capacity Shortage?
Jim Phillips, Yarn Market Editor
During the first few months of the year, those fears appeared to be justified, as spinners reported orders barely trickling in. And what few orders materialized were very short and required ultra-fast turnaround. As the year wore on, however, orders began to pick up, and many of those same spinners who were scrambling in the first quarter found themselves with healthy backlogs by the end of the third. As a new year fast approaches, Textile World surveyed a number of spinners to determine what must happen for 2010 to be a successful year.
For 2010, a far different picture is emerging, based largely on the relative weakness of the US dollar. Some spinners, for the first time in a very long while, are worried about capacity.
"Spinners, for the most part, are very busy," said an executive for one major US operation. "We're starting to push through some price increases, which is necessary because the price of fiber is going up. And it seems that more and more business is moving into Central America, which is going to put a lot of pressure on regional and US spinners.
"We've seen so much constriction in spinning, that if business returns to three-quarters of what it was in 2008, there won't be enough yarn, particularly in ring. You've got R.L. Stowe gone, Ramtex gone and others that have shut down some capacity. If business comes back, we're going to be under some real pressure. Prices are going to go up, customers are going to have to wait on some deliveries, and relationships are going to be more important than they ever have been."
He added: "People are going to want to cheat (in trade agreements). As long as we can [use enforcement to] keep people from cheating and not let everything go on short supply, and the dollar stays weak or does not strengthen appreciably, business is likely to be strong. Business is moving to Central America from Asia, largely because of the dollar. And, because of all the reduction in capacity, a lot doesn't have to move in order to have a huge impact on our business. We're quoting on longer programs than we have in quite a few months because our customers are quoting on longer programs."
Said a Carolina spinner: "Continued and expanded enforcement of current trade law is extremely important, with no additional concessions to any countries. We've seen some improvement in this regard and hope to see more."
Will Credit Derail Growth Plans?
Credit also is a major issue for 2010, and, along with low-cost competition, may provide the biggest obstacle to sustained growth. "If the government is able to push through this credit help program people are talking about, it would be a tremendous help, particularly in light of the CIT filing (See " CIT Group Proceeds With Reorganization," Nov. 3, 2009). You have the potential to have any number of customers who are demanding yarn, but no credit facility under which you can sell to them."
More than one spinner had struggled in early 2009 by carrying customer debt on the books for much longer than normal. "That won't happen now," said one spinner. "Most of our credit facilities will not allow us to carry any more debt."
A prominent specialty spinner provided this outlook for 2010: "We were actually rather bullish in the development of our business plan for 2010. This careful optimism is based upon business conditions for the past several months and the direction we have received from key sourcing partners. Lean inventory positions at major US retailers should benefit quick-response-focused Western Hemisphere vendors."
He continued: "As a specialty yarn producer, we are very dependent upon maintaining positive communication throughout the supply chain. A high level of customer service is imperative to continually condense product lead times, including development, sampling and production. Successfully managing logistics also plays a key role in customer satisfaction. Internally, we must manage a business strategy that requires us to be progressively more complex while providing product to the market at a more rapid pace."
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