Demand Dips Slightly
Jim Phillips, Yarn Market Editor
"We're still very busy," said one spinner, "but we have a little slack here and there for the first time in a long time. It's just been in the past several weeks that we've noticed a slight fall-off in orders."
Said one yarn broker who buys and sells both domestic and imported yarns: "Business is continuing at a pretty frantic pace, but I believe most people would tell you they are seeing it ease up a little bit. In the past four weeks, we noticed a drop in business activity in Asia. A week or so later, we noticed a drop in business on the West Coast, in Los Angeles. Two weeks ago — the week of April 11 — we started seeing the same thing in Central America. Right now, we're seeing a drop everywhere in our order inquiries, although our shipments — which, of course, are from orders already booked — are very stable."
He continued: "The question becomes, are people adjusting inventories, which is what we suspect, or is there actually a significant drop in business demand? We don't believe this is the case, but we don't know for sure at this point."
Said another spinner: "We've seen a bit of drop in order inquiries. I think you can attribute a lot of this to the fact that people feel a little more secure about product availability in the last half of the year. Earlier this year, capacity — especially for ring-spun yarns — was so tight that customers were overbuying to protect themselves. Now, as they feel a little bit more comfortable that product will be available when they need it, they are slowing orders to adjust inventories."
Escalating Pricing Pressures
Over the past few weeks, cotton prices have dipped substantially for the first time in a number of months. As of late April, the price of base quality of cotton in the seven designated markets measured by the U.S. Department of Agriculture averaged $1.7516 per pound, compared with $1.9511 just two weeks earlier.
"The fact that cotton has come down has suddenly put a lot of pressure on prices," said one Carolinas spinner. "This fits with the reduced business activity over the past few weeks, but, in reality, it does not fit with the costs incurred by U.S. manufacturers. Our cost of manufacturing is still very high, despite the recent drop in cotton prices. But our customers expect there to be an immediate drop in our prices in correlation with cotton prices. And, of course, it just doesn't work that way. We anticipate pricing pressure to continue, at least until business activity improves."
At this point, few spinners expect slight decreases in demand to be long-term or to be the forerunner of deeper cuts.
"We think that adjustments to inventory will continue through the balance of the second quarter," said one spinner. "Inventory is a bad word these days. If you get on the high side and prices drop dramatically, you can certainly get into trouble."
Shifting Ordering Recommendations
Earlier this year, when securing manufacturing capacity was a concern for many yarn buyers, the prevailing wisdom was to book orders well in advance in order to protect against possible shortfalls in product availability. For the last half of the year, that strategy is changing.
"Right now, I am telling my customers to buy only enough product to fill the orders they already have," said one buyer. "From a price standpoint, volatility is a concern for both mills and customers. Customers do not want to put themselves in a position of having a lot of high-cost product if prices drop. And mills do not want to be in a position of taking a big hit on margins, having customers refuse orders or trying to force customers to take product they cannot sell at prevailing prices.
"He said, "One thing is for certain. The last half of the year is shaping up to be very interesting."
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