Fiber Costs Drop
Robert S. Reichard, Economics Editor
The Bottom Line Impact
This changing material cost picture is also having a strong positive effect on the U.S. industries' financial health — primarily by lowering the proportion of the revenue dollars earmarked for this key production input. Thus, Textile World figures show that during last year's cotton price run-up, material outlays for companies making basic products like fabric accounted for a hefty 74 percent of each revenue dollar. This year, however, the figure is expected to slip to near 72 percent. And it's pretty much the same story for both more highly fabricated mill products like home furnishings and carpets, and apparel -with last year's 67-percent and 61-percent ratios each falling about four or five percentage points. More importantly, these cost trends are expected to continue into next year. TW editors, for example, see material cost/revenue ratios declining even further in 2013 — to 62 percent for basic mill products, 44 percent for more highly fabricated mill items, and 45 percent when it comes to apparel. These are clearly not insignificant declines. Indeed, they pretty much support TW 's feeling that industry profits and margins will improve not only in 2012, but in 2013 as well.
Some Thoughts On Prices
Prices, too, are contributing to overall industry optimism. One might think that recent declines in production costs would lead to some pressure on buyers to lower tags. But so far, there's been precious little evidence of this happening. Indeed, quotes on some key sectors like finished fabrics and apparel have actually continued to inch up. And again, all indications suggest this pattern will persist through the foreseeable future. One key reason: Fairly solid domestic demand is helping reduce the need for discounts and other price concessions. Note, for example, that over the past year, purchases of home furnishings, carpets, and apparel have all outpaced year-ago levels. Moreover, the positive demand impact on pricing is being reinforced by recent small declines in domestic excess capacity — as production potential continues to shrink. Still another price-bolstering factor: The gradual narrowing of the U.S.-overseas price gap. Other things being equal, this is calculated to strengthen domestic producer pricing clout. Strong confirmation of this shrinking gap comes from recent textile and apparel import price hikes — increases that have tended to outpace any relatively fractional ones posted by domestic firms. Throw all of the above into the computer hopper, and it suggests some modest upward revisions in TW 's earlier 2012 price forecasts — with the following increases now projected: 3 percent or so for basic mill products; 1 percent for more highly fabricated ones; and 1 to 2 percent for apparel. And for 2013, odds still favor firmness, with, again, a chance of some modest advances.
August 21, 2012
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