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Yarn Market

Outlook For 2011: Expect The Unexpected

Jim Phillips, Yarn Market Editor

I n the waning months of 2009, few spinners would have dared predict the consistent, outperforming results generated by the industry through most of 2010.

"Looking ahead, I believe we will continue our momentum into 2011," said one diversified spinner. "But I really hope my forecast for the year ahead is more accurate than the one I gave for the year past. Last year at this time, I was convinced the uptick in business at the end of 2009 was due to retailers finally deciding to restock their shelves. I was convinced at the time that business would be good into the first quarter and then return to the hit-and-miss way it had been previously. I thought when the initial restocking was done, that would be it. I was so wrong, and so glad I was."

Of continuing concern to spinners is the high cost of raw materials. Although fiber prices were beginning stabilize at the end of the year, higher costs are likely to be an issue for some time to come. "Yarn prices have continued to trend higher, congruent with escalating fiber costs," one spinner noted. "Passing along these cost increases has been easier through positive and stable mill operating schedules, low inventories and the Asian competition also facing significantly higher costs."

An Unknown: The Impact Of higher Prices At Retail

A Southeastern spinner said: "I think business will continue to be strong for the foreseeable future, at least as long as consumers are willing to pay the prices for products at retail. But, to this point, that is a big unknown."

He continued: "We all know that prices have escalated tremendously at the manufacturing and distribution levels for the past few months, but consumers have not felt the sting of it in their pocketbooks. They will very soon, as the higher-cost goods are beginning to hit the shelves. We are all kind of holding our collective breath to see what happens."

A Carolinas spinner, in assessing the outlook for 2011, said: "We should consider the experience from 2010: be prepared for the unexpected. Most spinners are already booked for the first quarter of 2011, which historically is unexpected for this time of year. Business opportunities should remain positive through the second quarter, although higher material costs could have an impact. We expect, at this moment, that the second half of 2011 will be similar to this past year, with positive order position and growing concerns about sufficient raw materials."

Another major concern among spinners, aside from prices, is the impact a full pipeline will have on product delivery, which has been a significant, business-generating point of differentiation for North and Central American spinners. Said one spinner: "Speed to market has been one of the primary competitive advantages toward developing Western Hemisphere business. We must remain focused toward maintaining the benefit of this service. We should not allow a strong order backlog to impede the service and response for our strategic accounts; otherwise we lose
an important advantage."

Higher Prices Affect Synthetics Outlook

Producers of synthetic yarns are also cautiously optimistic about the coming year. "Right now, business is good and we have orders to carry us through most of the first quarter," a spinner said. "But not only are higher material prices a concern for cotton spinners, they are affecting us as well. Early on, when cotton prices started rising, we felt that an opportunity might open for synthetics to fill a niche for price-conscious consumers. But the higher cost of energy, along with related costs, has negated much of that advantage."

Added another spinner, "While we anticipate a good year, we must continue to work hard to control costs and make sure we maintain decent margins."

The bottom line is that spinners expect a solid 2011, and are hoping for a repeat of 2010. Yet, so many variables have the opportunity to derail the momentum the industry has established. The best way to prepare for what's ahead, as one spinner noted above, is to "expect the unexpected."

December 21, 2010

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