Spinners Reap CBTPA Benefits

pinners looking for good news should check out the American Yarn Spinners Association’s
just-completed analysis of Caribbean Basin Trade Partnership Act (CBTPA) trade.

The analysis shows US exports of yarn and thread to the region, which were relatively static
prior to 2000, have increased dramatically through 2003. Total exports of yarn and thread to the
region totaled 45 million pounds in 1999, the year before preferences were established. By 2003,
that number had increased to 351 million pounds. Exports of US fabric made from US yarns also have
increased, as have exports of knit fabrics to the region.

On a related note, a machinery supplier noted that quite a few US knitters are setting up
shop in the Caribbean and Central America. Major players either building plants or having
production facilities already in the region include Russell Corp. and Fruit of the Loom. Some
ring-spinning (RS) capacity is expected to follow the knit and dye plants south, but open-end (OE)
production is expected to stay in the United States. Three factors make OE a stay-at-home
technology: an extremely low labor component; higher electricity costs abroad; and the cost of
shipping cotton to the region.

Ring Is Still King

Spinners report overall volume is great, particularly for RS yarns. One spinner summarized
current business conditions as “better than imagined a year ago, but I fear it is the calm before
the storm. Everyone is concerned about what will happen when the quotas come off.”

On the OE side, volume is decent but not as strong as RS. Pricing pressure remains an issue
here. Denim demand is firming up, and styles are moving toward RS yarn. At least one major denim
producer is moving its plants back onto a seven-day schedule. Pricing remains tight.

Cotton Market Looks For Direction

One mill executive noted “The cotton market can’t seem to figure out a direction, which makes it
difficult to plan.”

An industry observer expressed surprise that there wasn’t a big drop in business when cotton
prices went up. “I haven’t seen anyone fall off and start standing because their customers are not
giving orders,” he said.

A cotton merchant, asked about trends in the cotton trade, said it is “discouraging that the
domestic textile industry is fading away or going offshore.” He noted our “fearless leaders still
promise better things to come.”

He doesn’t believe it, but said he “still won’t vote for a Democrat.” When asked how the
coming quota phase-out would affect the cotton business, he replied, “What quota phase-out?”

Mill men, who are much closer to the quota situation, are reviewing their options and making
plans. One suggested spinners should “start looking at your customer base, pick the survivors and
position yourself to supply them wherever they are going to be.”

Another said, “When China unleashes its volume and other countries try to hold on, it will be
an ugly scenario.”

US Cotton Exports, China’s Mill Use Rise

In its March report, the US Department of Agriculture (USDA) gauged US 2003-04 cotton production
at 18.2 million bales. Both mill use and exports were up from February’s report of 6.3 million
bales and 13.8 million bales, respectively. Total export commitments through the week ending
February 26 were almost 11.8 million bales, about 2.2 million bales higher than total sales for the
same period in the 2002-03 marketing year.

World cotton production for the 2003-04 crop year was raised 210,000 bales to almost 93
million in the USDA’s latest report. Brazil and Australia together accounted for the increase. The
world mill use estimate rose 640,000 bales to 97.9 million, largely due to a predicted increase in
China’s mill use.

January total cotton consumption by domestic mills was 238.2 million pounds for a seasonally
adjusted annualized rate of 6.49 million bales, according to the US Department of Commerce. Last
January’s annualized rate was 7.37 million bales.

On the man-made side, one fiber trader noted price increases in polyester and polypropylene
are being driven by rising oil prices. He expects prices to stabilize, trend back down and then
rise some more, “because that’s what they always seem to do.”

April 2004