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Yarn Market

A Strong First Half

Jim Phillips, Yarn Market Editor

T he first half of 2010 ended for many spinners exactly the way it started: running at full capacity with orders coming in faster than they can process them. Production backlogs are extending out many weeks, and even months. This time last year, many spinners reported their backlogs were down to just a few days.

"It's definitely a seller's market at the moment," said one Southeastern spinner. "We expect business to continue strong at least for the remainder of the year and, hopefully, well beyond that."

Another spinner noted that for the first time in recent memory, his plant would operate a full schedule over the Fourth of July week.

"We will be running flat out. Our challenge now is not to get too far behind," he said. "But with all of the changes we are making — orders are still short — it's everything we can do just to keep up."

Not only are orders still relatively small, at least for most specialty spinners, the variety of yarns spun is on the rise. "It seems that everybody wants something different — some way, big or small — to make their products stand out from their competitors," said one specialty spinner. "It requires us to do a lot of changing out. But we're happy to get the business any way we can get it."

Said another spinner: "Our product mix has changed. We used to sell a lot of cotton, but lately we've been moving a lot of rayon."

Margin Pressures Remain
Despite the robust business yarn spinners are enjoying, the seemingly never relenting pressure on profit margins remains.

"It doesn't do us any good to sell all of this yarn if we can't turn a profit on it," quipped one spinner. "The fight for us right now is raw material prices. Every day, it seems I pay more for raw materials than I did the day before. They are just out of sight."

He continued: "It's hard for us because the retailers don't want any price increases, but they are being forced to accept them. If they are not willing to pay a higher price, they don't get yarn. But the problem is you can't raise prices fast enough to keep pace with the price of raw materials."

An offshoot of increased prices is that production of some commodity yarns has actually decreased, according to one spinner.

"Retailers aren't willing to pay the price the product is commanding right now, so they are moving to cheaper products," he said. "They are using lower-quality yarns to make their premium products now. The yarns that used to go into a $30 shirt are now going into an $80 shirt. It's hard for me to believe that consumers won't recognize that, and that it won't end up eventually costing the retailers business."

Not only are raw material costs going up, but an already hotter than normal summer is driving up energy costs, especially in the South Atlantic region.

"We've been hit there, too, and will probably be hit even harder next month when we pay for these temperatures that have been running 10, 12 or even 15 degrees hotter than normal," said one spinner.

If there is a single saving grace in material costs, said a specialty spinner, it is that the cost of trade with Europe has not escalated significantly.

"The dollar has been holding its own against the euro lately, and that has helped us," he said.

Delivery Moving Out
One of the differentiating characteristics of spinners in the Western Hemisphere is their ability to quickly and efficiently deliver orders.

"Quick response has been one of the keys to our success for quite some time now," said one spinner. "As good as the market is at the moment, we cannot afford to forget the basic points of differentiation that have allowed us to remain competitive with low-cost countries. Those points include innovation, service and fast turnaround. As capacity fills, some of those very short delivery times are, out of necessity, being extended. This time last year, if you ordered yarn from me today, I could get it to you next week. Now you are looking at two months or more. At some point, that has the potential to open some doors we would just as soon keep closed."

July/August 2010

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