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Yarn Market

Business Strong, But Concerns Mount

Jim Phillips, Yarn Market Editor

O rders continued to be strong across both ring-spun and open-end (OE) segments through mid-February, despite increasingly tight supplies and escalating prices.

As has been the case for much of the last nine months, buyers say ring-spun yarn is all but impossible to find in the near term, and delivery of OE yarns is often on an extended schedule.

Two questions seem to be increasingly common throughout the yarn supply chain: How long can business be sustained at current prices? And, at what point does the delivery bottleneck become a deal breaker?

"I am hearing that spinners are passing their costs along with relatively minimal push back," said one yarn buyer. "And I am hearing that many customers, at least at this point, are accepting delivery estimates well beyond what they would normally allow. It's just what the market is at the moment. Customers know that if they want yarn at all, this is what they have to accept. Who would have ever thought you would have $2.00 cotton and have to wait months to get it?"

Spot cotton prices again hit a record in mid-February. At $1.80 per pound, prices for base quality of cotton were the highest since records were established in 1917.

One industry observer noted: "I think retailers understand at the moment that they have to take whatever they can get. It's not that yarn is short supply in this hemisphere. Yarn, particularly ring-spun, is hard to find anywhere in the world right now. "

"It wasn't so long ago that if my customer wanted a small run and I couldn't deliver it in two weeks, I wouldn't get the business," said a yarn broker. "I just sold a small lot of specialty yarns earlier this week for delivery in May — and was lucky to get that."

"Being able to get yarns to customers is, obviously, a concern," said one spinner. "Quick response is the niche that allowed us to sustain our industry in this hemisphere. If we lose that advantage, it potentially sets us up for a long-term struggle. I have lost business to Central America just recently because I couldn't get product to the customer when they needed it. To this point, that has been just an occasional thing. But it certainly could become a much bigger long-term problem, especially if companies in other nations have the capacity to be more responsive."

A Capital Question
One executive who both manufactures and brokers yarn questions how long some customers can continue to place orders without having concerns about capital. "Raw material and yarn prices right now are close to double what they were two years ago," he said. "It's just a matter of time, if current conditions persist, before many of them will have to find additional capital to maintain their orders. And, from what I hear, despite the fact that we seem to be in the high stages of recovery, credit is still very tight for many in our industry. Where is this additional capital going to come from? How are customers going to finance their needs? And what happens if there is a sudden shift in the market?"

Longer-term Orders
"A lot of mills have some big, extended orders on their books," said an industry executive in the Carolinas. "There is certainly some concern that these orders are in place just to make sure they have positions going forward. We could find ourselves in the position of having to scramble around to replace these, if business or market conditions change. I am not trying to be negative, but we went from famine to feast in short order, and the opposite is certainly possible."

The bottom line for many spinners, brokers and customers is that the market conditions under which they are manufacturing, buying and selling are somewhat unusual.  The combination of decreased capacity in the Western Hemisphere, increased demand, high prices and raw material shortages has placed spinners in an environment they have rarely seen. "I am not predicting a return to those times when we were scrambling around week-to-week to find short runs of business," said one spinner. "But we need to be prepared and have good communication throughout the supply chain so that everyone understands expectations and capabilities. Now is not the time for surprises."

February 15, 2011

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