So Far, So Good

he yarn mills continue to enjoy brisk business, running at or near capacity. The strength
of the yarn market, given recent import figures, has quite a few folks in the industry scratching
their heads.

“This is probably as good a market as [spinners] have seen in a long time,” said one industry
observer. “They aren’t saying prices are great, but they aren’t complaining about them either.
Having said that, I’ve also seen the import figures, and I don’t understand it.”

Will this strong demand continue or is a downturn coming? In the short term, business seems
to be holding firm.

“It looks very good for the next three months and maybe out six months,” said a specialty
ring spinner. “No one knows after that.”

Spotty Man-Made Business

In contrast, spinners producing yarns rich in man-made fibers have found market conditions to
vary from disappointing to fair. One man-made fiber spinner reported running five days a week but
said he really needs to run six days to make any money. The export business also is tougher on the
man-made side.

“We’re exporting yarn and diligently looking for more export business, but the volume is just
not there in man-made yarns like in cotton,” said another man-made spinner. “We thought we would
survive on the specialty business, then you see how many specialty products are already coming out
of China. We’re going to have to reassess what we are doing.”

A perennial problem here is rising man-made fiber prices. Polyester fiber producers have
announced yet another increase.

“The increases are not getting passed on at retail,” said a multisystem spinner. “The chain
has to absorb it, and eventually you are going to weaken the links in the chain.”

For the last year or so, it appeared the US man-made fiber business might get a break. The
prices of commodity chemicals in Asia have been rising due to increased demand and have been
getting closer to the prices US fiber producers pay. Unfortunately, these higher costs just don’t
seem to show up in the prices of imported goods.

”The fiber guys say that the Chinese buy their chemicals on the spot market and in some
instances have to pay considerably more than our suppliers charge,” said one spinner. “Domestic
fiber producers say they are getting better prices for fiber in China, yet the goods came in
cheaper in January than last year. That has got to be more than just the cost of quota.”

Export Upswing

Exports remain a bright spot, with many spinners reporting shipping significant production
offshore. Even commodity spinning seems to be going to exports. Quite a bit of this yarn is going
to the Caribbean Basin Initiative (CBI) region, including places like Honduras, Guatemala and some
areas in South America. At least one specialty spinner is selling yarns to markets like Singapore,
Hong Kong and Malaysia.

“We continue to see exports climb,” said a ring spinner. “We are more than 75-percent export
and feel we will hit 80 to 90 percent by year-end. We knew the quotas were going, and we also knew
that some of our customers here would not make it. We have aggressively gone after securing
business elsewhere in the world; a good portion goes to CBI.”

US Cotton Exports Hang Near Record

The latest US Department of Agriculture cotton forecast for 2004-05 projects US cotton exports
at 13.2 million bales, up from a month ago but still below the 2003-04 record of 13.8 million. The
lower exports this season are attributable to competition from a record foreign cotton crop.
Nevertheless, the US export share of demand is nearly unchanged from last season, as US mill use
experiences its seventh season of decline. In 2004-05, the US export share of demand is expected to
remain near 68 percent, well above most years of the past decade.

US cotton exports are sustained this season by the increased foreign consumption that has
exceeded production in each of the past nine seasons. Foreign cotton use in 2004-05 is forecast at
a record 99.9 million bales, resulting in considerable foreign imports despite the record crop.
China continues to propel the consumption growth, with use there forecast at 37.5 million bales and
imports projected at 9 million — both record numbers.

April 2005