Price Pressures Becoming Severe
By Jim Phillips, Contributing Editor
T he normal end-of-the-year concern about balancing supply, demand and production during the holidays — which is usually among those items at the top of every spinner’s mind at this time of year — has taken a backseat to what has become the de facto big issue for cotton spinners: raw material prices.
“We were sitting here just a few months ago with raw material prices in the low $0.50s,” said one South Carolina spinner. “Now we’re looking at March prices that could be $0.70 or more. It seems we’ve been spending most of the fourth quarter dealing with the volatility of raw material prices.”
“It really wasn’t that much of an issue in the first three quarters,” said another Southeastern spinner. “We kept expecting prices to go up, but they didn’t move as fast as we thought. Cotton has been very consistent in its price. This has been true not just for the first part of 2007, but, historically, for the past few years. Then, in the fourth quarter, we’ve really seen some big increases.
“We’re trying to pass these increases on, but we’ve been having some challenges in trying to do that,” he continued. “When you look at it from a global perspective, we feel like we should have more room to pass some of these increases along. These increases in cotton prices affect spinners all over the world, not just those in the United States. Perhaps, though, spinners in Asia have a lot more flexibility with their margins because of the low cost of labor.”
Part of the difficulty in passing costs along, said a spinner in North Carolina, is that yarn prices were deflated in the third quarter as a result of spinners trying to get rid of excess inventory.
“It seems to have gotten a little better recently, but I still don’t see prices up where they need to go. We need to be up around the $1.60-or-so range for 30/1, but we’re seeing prices anywhere from $1.48 to $1.52. And for some companies still trying to get rid of inventory, those prices are even lower.”
Cotton prices have been affected by strong worldwide demand and reduced production. Cotton plantings in the United States decreased in 2007 — as farmers planted corn to take advantage of increased demand for alternative fuel sources.
“It doesn’t look like there is going to be any real relief for the foreseeable future,” noted one spinner.
Niche Products Provide Flexibility
Many of the spinners who have had the good fortune to pass increased raw material prices along to customers are in specialty markets, where value-added somewhat offsets customer reluctance to pay more.
“We’re in, perhaps, a better position than a lot of spinners because we have a product that our customers do not have a lot of sources for, so we can price according to what the market should be,” said one North Carolina specialty spinner of cottons. “We’ve made a push to have a big presence in niche markets in order to keep our margins at an acceptable level.”
Holiday scheduling is always an issue for spinners — and, for the fourth quarter of 2007, is providing particular difficulty for some. “We, obviously, have to take into consideration the holiday schedules of the weavers we work with, as well as the schedules in Central America. But, add to this the fact that we still have some inventory issues, and we are having to take a hard look at how we are going to run through the holidays,” said one ring spinner. “We’re trying our best to keep a normal schedule, but I just don’t know at this point how it is going to work out.”
The Near Future
Looking forward to the first quarter, spinners are mixed in their market
“I am really optimistic at this point,” said one. “I see an increase in orders and the beginning of an order backlog.”
“At this point, I am concerned,” countered another. “I don’t know that the increase we initially anticipated will be there. And I am very concerned about margins.
We weren’t making much money before the price of cotton went through the roof. We were expecting the fourth quarter to be better, but it hasn’t been. We’ll just have to wait and see.”
Download Current Yarn Prices.