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Yarn Market

Strong Demand Creates Different Challenges

Jim Phillips, Yarn Market Editor

M uch has been written in this column over the past several months about the improvement of business conditions and the resulting increases in business pipelines, profit margins and overall stability.

Yet, like any major economic change, the uptick in spinning orders comes with its own set of business challenges, particularly payment, delivery and cost containment.

"Our challenge continues to be in getting our money in a timely fashion," said one well-placed specialty spinner. "It seems our customers keep wanting to stretch it out. They want to put you off and get longer and longer terms. This has been going on for some time now — at least the last couple of years — and does not seem to be decreasing despite the increase in orders."

While credit still seems to be an issue for many companies, money is not as tight as it was just a few months ago. But, said one industry observer, a lot of companies do not want to let go of what they have. "They are still unsure, despite optimistic projections, of what lies ahead," he said. Having been recently burned, they want to stretch payment out for as long as possible to maintain a good cash-flow position."

Delivery Issues
Another issue — one that has been with Western Hemisphere spinners for quite some time — is delivery. Obviously, the ability to turn orders around quickly has been a major competitive advantage for spinners doing business in the Central America-Dominican Republic Free Trade Agreement region, but an increase in orders has the potential to create some logistical issues.

"We have some orders that are going out two to three months," said one spinner, "but most of our customers place an order today and still want it in the next week or two. Right now, we are having to do a lot of frame changes and a lot of jockeying around trying to please everybody. So far, we've been able to do just that."

Price Increases Are Cause For Concern
Increasing demand is almost always followed by higher prices, and that's a concern for a number of spinners. "Our costs have been increasing substantially over the past few months, particularly in raw materials," said one spinner. "Fortunately, we've been able to pass a lot of those along to our customers. But we want to be careful to continue to provide as much cost-effectiveness in our supply and value chain as possible."

Said another spinner: "Raw material cost escalation is a concern. We are trying to find ways to minimize this impact on our customers while at the same time protecting our margins."

Demand Expected To Be Strong Long-Term
Surges in demand over the past few years, spinners say, generally have been attributable to inventory replenishment as retailers have allowed their shelves to become almost empty before placing new orders. This most recent increase, however, has industry insiders hopeful that, at least for ring-spun yarns, positive business conditions will last for some time. Open-end (OE), on the other hand — while strong now — faces a more uncertain demand forecast.

"I personally think it is going to be longer-term this time," said one spinning sales representative. "All the folks I've talked to in the United States and Central America feel that way.

"The weaker dollar and retail's aversion to increasing inventory create sustained opportunity for business in Central America, particularly on the ring-spun yarns, although the OE market is exceptionally good right now," he continued. "With OE, the question is whether or not it is sustainable. If you talk to finishers, you don't hear a lot of folks finishing OE fabric. The push still is for ring-spun yarns and ring-spun fabrics. It must be that OE apparel makers have run their pipelines so dry that they are sucking up all the OE for T-shirts. Once that pipeline is full again, I can't help but think we will hit the same wall in OE we hit before.

"But it looks like, for the next two or three months, there is not going to be enough open-end. Ring-spun, though, I believe will be strong at least through the remainder of the year," he concluded.

May/June 2010

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