Managing Expectations – Mills Are Wary

pinners describe running conditions all the way from full tilt to moderate and
strengthening. As usual, there is variation among the different end-use markets and spinning
technologies. A ring spinner notes he has been running full blast for a while.

A multisystem spinner has had to adjust capacity downward. “We scaled back our operations
somewhat last year,” he said. “We are running reasonably well with this new level of production.
One plant could use some more business, but it’s seasonably awkward for that plant to be full at
this time. We don’t want to bring the price down just to generate business.”

An open-end (OE) spinner is running at about 85-percent capacity versus running flat out this
time a year ago. A specialty ring spinner reports strengthening demand, and is adding capacity and
a new state-of-the-art Murata winder.

Pima In Demand

A ring spinner with significant Pima cotton production is enjoying excellent fiber quality and
powerful demand. “The cotton crop is probably the best I’ve seen in Pima,” he said. “The pricing is
probably below where we were a year ago, but it is starting to come back. Up until recently, no
retailer would even talk to you about increasing prices, but the yarn market is tight. We are
getting inquiries from people who haven’t called us in a long time.”

Another spinner is mildly optimistic. “We see enough business for us to make budget this
year, but that doesn’t mean it will be easy,” he said. “It will be a continual struggle on prices.
So we have to be circumspect about the market as we try to achieve our goals on pricing and product

A third spinner is seeing a slowdown in the upholstery fabric segment. “The housing market is
down; fewer homes are being bought and decorated,” he said. “Plus, consumers have to spend more on
their heating bills and gasoline. So, there is less money for apparel or towels.”

The Fiber Nickel And The Yarn Dime

Both man-made and cotton fiber prices are moving upward once more, putting the squeeze on
spinners. There appears to be no end to upward price pressure on the man-made side. Cotton has been
up and down — mostly up.

“The price of polyester is about to move up,” said one spinner. “Producers have been kind of
flaky in the last six months or so. They created a surcharge mechanism and adjusted it on a monthly
basis. Now they’re having a pure fiber price increase. We just lost a major acrylic producer —
Solutia. I see what is going on with the price of natural gas, oil and other inputs. I’m a little
concerned about inflation.”

“Cotton is up from 51 cents per pound three months ago to 56 cents now,” said the OE spinner.
“It’s another nickel, and we can’t pass it on either. It’s a lot of pressure. The other side is
that people are wondering why the demand is as weak as it is.”

On the other side of the equation — yarn prices — spinners report mixed success in passing
rising costs along to retail. “We moved our prices up over the past several months,” said the
multisystem spinner. “We are working on a partnership basis with our vendors and customers more
than ever before. We are trying to understand each other’s pricing levels.”

“Yarn prices, you can’t raise them,” said the specialty ring spinner. “The customers are
still not ready for a price increase. We are suffering with this cotton cost. I could overcome it
with better running conditions. I don’t want to scare people away with higher prices.”

Under Armour® Model

Perhaps there is a way to escape the crushing price pressure of the yarn market. One mill
executive lauded Baltimore-based apparel maker Under Armour® for its branding, performance and
marketing savvy, to say nothing of its impressive share of shelf space in almost every US sporting
goods store.

“[C]ertain innovative manufacturers are managing to separate themselves from the pack by
having a different brand identity, a different product-development cycle or a different mentality,”
he said. “They are companies like Under Armour that have a product with benefits they can translate
in a few talking points. The only way the industry can grow is by being incredibly innovative.
Perhaps we can get a little more juice out of this orange.”

March/April 2006