Demand Dips Slightly


U
ncertainty over prices and inventory control have combined to slow orders for many
spinners over the past month.

“We’re still very busy,” said one spinner, “but we have a little slack here and there for
the first time in a long time. It’s just been in the past several weeks that we’ve noticed a slight
fall-off in orders.”

Said one yarn broker who buys and sells both domestic and imported yarns: “Business is
continuing at a pretty frantic pace, but I believe most people would tell you they are seeing it
ease up a little bit. In the past four weeks, we noticed a drop in business activity in Asia. A
week or so later, we noticed a drop in business on the West Coast, in Los Angeles. Two weeks ago —
the week of April 11 — we started seeing the same thing in Central America. Right now, we’re seeing
a drop everywhere in our order inquiries, although our shipments — which, of course, are from
orders already booked — are very stable.”

He continued: “The question becomes, are people adjusting inventories, which is what we
suspect, or is there actually a significant drop in business demand? We don’t believe this is the
case, but we don’t know for sure at this point.”

Said another spinner: “We’ve seen a bit of drop in order inquiries. I think you can
attribute a lot of this to the fact that people feel a little more secure about product
availability in the last half of the year. Earlier this year, capacity — especially for ring-spun
yarns — was so tight that customers were overbuying to protect themselves. Now, as they feel a
little bit more comfortable that product will be available when they need it, they are slowing
orders to adjust inventories.”


Escalating Pricing Pressures 


Over the past few weeks, cotton prices have dipped substantially for the first time in a
number of months. As of late April, the price of base quality of cotton in the seven designated
markets measured by the U.S. Department of Agriculture averaged $1.7516 per pound, compared with
$1.9511 just two weeks earlier.

“The fact that cotton has come down has suddenly put a lot of pressure on prices,” said one
Carolinas spinner. “This fits with the reduced business activity over the past few weeks, but, in
reality, it does not fit with the costs incurred by U.S. manufacturers. Our cost of manufacturing
is still very high, despite the recent drop in cotton prices. But our customers expect there to be
an immediate drop in our prices in correlation with cotton prices. And, of course, it just doesn’t
work that way. We anticipate pricing pressure to continue, at least until business activity
improves.”


At this point, few spinners expect slight decreases in demand to be long-term or to be the
forerunner of deeper cuts.

“We think that adjustments to inventory will continue through the balance of the second
quarter,” said one spinner. “Inventory is a bad word these days. If you get on the high side and
prices drop dramatically, you can certainly get into trouble.”


Shifting Ordering Recommendations


Earlier this year, when securing manufacturing capacity was a concern for many yarn buyers,
the prevailing wisdom was to book orders well in advance in order to protect against possible
shortfalls in product availability. For the last half of the year, that strategy is changing.

“Right now, I am telling my customers to buy only enough product to fill the orders they
already have,” said one buyer. “From a price standpoint, volatility is a concern for both mills and
customers. Customers do not want to put themselves in a position of having a lot of high-cost
product if prices drop. And mills do not want to be in a position of taking a big hit on margins,
having customers refuse orders or trying to force customers to take product they cannot sell at
prevailing prices.

“He said, “One thing is for certain. The last half of the year is shaping up to be very
interesting.”

May/June 2011

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