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Yarn Market

Business Remains Strong; Trade Agreement Danger On The Horizon

Jim Phillips, Yarn Market Editor

Business continues to be brisk for many in the yarn business, with both cotton and man-made fiber yarns in high demand.

"I am scared to talk too positively," said spinner, "because I don't want to jinx anything. But our business is actually is very good. We absolutely can't complain, at least not today."

His assessment was echoed by other spinners, who noted that business, in general, has been solid since the mid-point of last year. "Our business remains strong," said one spinner. "Except for a small dip at the beginning of the year, which, I think, was a result of customers pausing to take stock of their needs, sales have been strong for quite some time. There are no immediate signs of that slowing down at all."

Added a yarn broker: I am in industrial yarns, apparel yarns and home furnishing yarns; and all are moving at a brisk pace. If there is one market that is not performing as well as the others, it would be home furnishings. I have talked to several folks who say they are not as busy as they want to be or thought they would be at this point. Historically, people get their tax refunds this time of year, and many of them go out and buy furniture or have things recovered. For whatever reason, that does not appear to be happening as much this year as in the past, and certainly not at the level that many folks expected."

He continued: "The apparel folks are busy because retailers are trying to push more product here. The industrial fabrics people are busy as production increases and unemployment drops. As well, some spinners have converted capacity away from industrial yarns to capitalize on the recent surge in demand for apparel yarns."

Said one Southeastern spinner: "I am quoting on more big apparel programs today than I have at any time since the mid-1990s. I have people asking me to quote on orders as big as 300,000 pounds a month. They want to know if that yarn is available, what's the cost and how quick they can get it. Even so, there is still some availability, especially in synthetic yarns."

Of some concern to spinners and others associated with the industry is the possibility that yarn supply gets so tight that it triggers panic buying, as was the case several years ago. Prices escalated dramatically as almost every spinner in the Western Hemisphere faced a surge in demand and a shortage of raw materials. The market went from feast to famine virtually overnight, as demand diminished significantly. This left many spinners with a surplus of raw material that was purchased at a price well above what the finished product was worth.

"The levels are not yet to the point where we are seeing the crazy growth that everybody gets scared about," said one spinner. "But at the yarn level, particularly in industrial yarns, there is some pressure. There may be more capacity in the overall supply chain, but, at the yarn level, it is pretty tight."

Except for the post-boom stagnation of the market for a few months in late 2011/early 2012, the yarn industry in the Western Hemisphere has enjoyed its greatest run of sustained prosperity since the mid-1990s, which prompts many observers to speculate whether U.S. capacity is too small for current market conditions. And, indeed, if this is the case, is the United States a prime candidate for additional textile industry investment?

"There is no doubt that the industry has downsized capacity over the years to adapt to changing market conditions. In fact, for many years, all we heard was about the slow death of the American textile industry," said another spinner. "Now, however, as you see rising labor costs in traditional low-wage nations and compare their increasing costs with the production efficiencies we have the United States, you begin to see that American spinners are finally in a position to compete favorably with just about anyone. When you take into consideration quality, delivery, service and price, U.S. yarns now represent about the best value in the marketplace. Coupled with increasing transparency, a stronger desire among U.S. citizens for Made-in-USA products - and retail customers eager to capitalize on that demand - you can make an argument that the textile industry in this country is primed for an era of growth."

Investors Talking Growth . . . But TPP Looms Large

The word on the street is that a number of companies are rethinking the United States as a viable option for textile manufacturing expansion. "There is a lot of interest now, especially with the resurgence of Made in USA among consumers," said a spinner. "Over the past few years, we've seen that supply can get really tight in periods of high demand. For the first time in recent memory, there is actually a need for more textile capacity in the United States. Yet, it is unlikely that anyone is going to take positive action until there is some resolution to the proposed structure of the Trans-Pacific Partnership [TPP]."

The TPP is a free trade agreement currently under negotiation among 11 Pacific Rim countries including the United States, Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.

Of particular concern to U.S. yarn spinners is the potential inclusion of Vietnam in the partnership without a yarn-forward provision, which would require that yarn production, fabric production, and cut-and-sew all occur within the TPP region in order for a garment to enter the United States duty-free. Without such a rule, the U.S. industry argues, countries such as China would have unbridled access to U.S. markets through Vietnam.

"The TPP is the single-biggest obstacle we have today to expansion of the textile industry in the United States. It is, literally, the only thing that is standing in the way of a 'New Deal' for the U.S. industry," said one observer. "We have to figure out a way to either abolish the TPP or, at an absolute minimum, make it yarn-forward. It is the biggest threat to this industry that we have seen, by far, in the past 20 years."

If Vietnam joins the partnership without a yarn-forward rule, the impact will be felt far beyond the United States, sources say. "Not only will it destroy the U.S. textile base, it will absolutely decimate Central America," said one industry executive. "It will leave hundreds of thousands of people without jobs and will cause economic disruption on an unbelievable scale."

Added another industry insider: "The only problem with the TPP is Vietnam, which, behind China, is the second-largest apparel manufacturer in the world. We have relationships with almost every other country involved. Vietnam wants to get into TPP because of textiles, but only wants to be a part of the partnership under 'single transformation,' which means the yarn in Vietnamese fabric and apparel can come from anywhere in Asia, and that means predominantly China."

He continued: "In the end, when you look at the future of the U.S. textile industry, and, in particular, yarn manufacturing, it literally comes down to an either/or scenario. Either Vietnam joins TPP without a yarn-forward rule and the industry suffers a devastating blow, or folks in Washington come to their senses and realize that such an occurrence is an untenable situation, in which case, the U.S. industry is primed to prosper."

April 2013

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