Spinners Solidly Behind CAFTA-DR



M
 ills are rocking along with full running schedules. Most market segments look good.

“We are still running strong, flat out seven days,” said an open-end spinner. “Cotton is
very strong. Blends are not quite as strong. We’ve been running strong going back into last year.”

Spinners are optimistic about the near-term business outlook with the Dominican
Republic-Central American Free Trade Agreement (DR-CAFTA) in place, although a few do see signs of
easing demand.

“As far as the next few months, it
looks as if the weaving market is slowing down, which will affect the yarn market soon,” said one
ring spinner.

A pickup in hosiery orders is expected because of China safeguards, while the upholstery
fabric market continues to lag. The growing appeal of leather furniture may be depressing this
segment. Furniture makers also report slow sales, due in part to aggressive promotions from
automakers.


CAFTA-DR Opportunity

Most spinners see DR-CAFTA as an opportunity and perhaps the only way to compete with Asia.

“[DR-]CAFTA was really a matter of saving the industry,” said a multisystem spinner. “
Critics said we would lose jobs, and I don’t disagree. But I think it was a matter of losing jobs
or losing the industry. Some of the more labor-intensive work, which has been going out of the
United States for many years, will continue to move out. But there will be a base left that might
not have been possible without [DR-]CAFTA.” 


No More Step 2?

The US Department of Agriculture (USDA) has proposed eliminating Step 2 payments in response to
the World Trade Organization ruling in Brazil’s case against the US cotton program. Step 2 is part
of the Three-Step Competitiveness Program included in the 1990 farm bill that helped offset low
cotton pricing from other countries in the late ‘80s.

Spinners appear neutral on the possible elimination, but have concerns about when and how the
change will be implemented. It is vitally important to the mills that they be able to buy cotton at
the same price as competitors abroad.

“Step 2 rectifies the difference between world and US cotton prices,” said a mill executive. “
I think it is reasonable to assume that without Step 2 prices, cotton prices will actually fall.
[T]he market will have to make up that difference if US cotton is going to be competitive on the
world scene. Over the last 10 years, the United States has become a residual supplier to the world.
We have gone from a 65/35 split of US cotton being used domestically to the opposite — 35/65. So
they will have to be competitive in terms of world prices.”


Connecting With Retailers

One spinner described yarn prices as stable at best. Others admitted to a falloff in pricing due
to conditions at retail. US spinners would like to see more cooperation between themselves and
retailers. They feel more products could be sourced in the United States if retailers didn’t
automatically exercise the China option.

“In the past year, our average price has dropped 20 cents a pound,” said a specialty ring
spinner. “There is tremendous price pressure from the retailer. They don’t accept any price
increases. You have to make it cheaper than you did last year. That’s very difficult with the price
of energy, labor and just about everything else going up.”

Cotton prices should stay relatively stable, with China, India and domestic producers
planning to increase plantings.

In the USDA’s June acreage report, it estimated 2005-06 US cotton plantings at 14 million
acres, up 2.7 percent. Upland planted area is estimated to have increased 2.6 percent to 13.8
million acres.

On a regional basis, upland area in the Southeast is up 1 percent to about 3 million acres.
Planted acres are expected to increase to 3.9 million

in the mid-South in 2005, up 13.1 percent. In the Southwest, estimated upland area is down
0.9 percent to 6.1 million acres. Estimated upland area in the West is down 8.4 percent to 795,000
acres.

The USDA estimates extra-long-staple plantings of 266,000 acres, up 6.6 percent. The largest
percentage increase is in Arizona; estimated plantings there are up 33.3 percent to 4,000 acres.
Plantings also are up 7 percent in California and 4.8 percent in Texas.


September 2005

Adjoined Sets Up ERP System For Performance Fibers

Performance Fibers Inc., Colonial Heights, Va., has selected Miami-based Adjoined Consulting Inc.
to deploy, manage and host its enterprise resource planning (ERP) system. As part of the
arrangement, Adjoined will provide SAP application services, strategic consulting, hosting and
disaster recovery in a flexible environment. A three-phased approach will be used that initially
will validate and refine existing functionality developed prior to Performance Fibers divestiture
from Honeywell International in December 2004. Later phases will include introducing the
environment to Performance Fibers operations in China and Korea.

“As we continue to grow as global leaders in providing advanced fiber technologies post
acquisition, it was critical that we identified a partner who had a proven integration methodology
and experience in performing divestiture engagements for similar clients,” said James Napolitan,
vice president, information technology, Performance Fibers. “It was evident that due to Adjoined’s
know-how, dedicated resources and support capabilities, we could meet our implementation timeline
without compromising the superior level of service we provide to our customers.”

September 2005

Kayser-Roth Announces 7 Million Expansion

Greensboro, N.C.-based legwear and apparel manufacturer Kayser-Roth Corp. recently announced it
will invest $7 million to expand its sock manufacturing and distribution facility in Burlington,
N.C., over the next three years. The expansion will add 100,000 square feet next door to the
existing facility, and is expected to create 180 jobs.

September 2005

Kaeser Controller Manages Up To 16 Compressors

Fredericksburg,
Va.-based Kaeser Compressors Inc. now offers the Sigma Air Manager (SAM) for complete compressed
air system control including monitoring, sequencing and analyzing performance of almost any system.
According to the company, SAM can manage up to 16 compressors or vacuum pumps of various types and
brands, as well as dryers, drains and filters.

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Using an industrial personal computer with Internet technology to enable remote control, SAM
provides service alerts and trending data for analysis of a plants operations. The standard Sigma
Air Control basic software performs these tasks, while optional Sigma Air Control plus software
enables data storage for reporting, system audits, control optimization and long-term trend
analysis.

September 2005

Q1 Global Fabric Output High 2004 Machinery Shipments Mixed

First-quarter (Q1) 2005 global fabric output continued at its record level, and yarn production was
virtually unchanged; while global fabric and yarn inventories were lower for the period, according
to the Switzerland-based International Textile Manufacturers Federation’s (ITMF’s) latest State of
Trade Report. 

South American fabric output rose 7 percent, while Asian production fell 1.2 percent.
European output was up 0.2 percent. Year-on-year global output grew 23.2 percent, led by Asia’s
53.6-percent growth. South American production fell 8 percent on an annual basis.

Global yarn production rose just 0.3 percent for the quarter and 1 percent year-on-year.
South America registered a Q1 production increase of 1.4 percent, and a 2-percent year-on-year
drop, while Asian output was down 0.5 percent for the quarter and rose 3.5 percent on an annual
basis.

Fabric inventories were down 1.3 percent for the quarter and up 4.6 percent over Q1 2004
stocks.

Yarn stocks were 0.7-percent lower for the quarter; but grew 13.8 percent year-on-year, with
increases in North America and Asia at 30.2 percent and 15 percent, respectively.

ITMF’s report on 2004 textile machinery shipments showed increases in weaving, flat knitting
and short-staple spindles; and decreases in texturing, circular knitting, long-staple spindles and
open-end (OE) rotors.

Of 8.2 million short-staple spindles shipped, 4.5 million went to China and 1.4 million to
Pakistan. Asia accounted for 92 percent of all shipments, compared with 88 percent in 2003.

Long-staple spindle shipments dropped 19 percent to 196,000 including 97,000 to China – an
18-percent increase; and 41,000 to Iran – a 64-percent jump; while shipments to Turkey were down 73
percent to 17,000.

OE rotor shipments, at 278,000 positions, were 20-percent lower than in 2003. China’s
41-percent share represented a 55-percent reduction over 2003. Turkey’s share grew by 19 percent.
India’s grew by 775 percent.

Single heater draw texturing and double heater spindle shipments were down 9 percent and 38
percent, respectively.

Shuttleless loom shipments increased 5 percent over 2003 to 65,500, with China taking 74
percent of shipments.

Large circular knitting machine shipments fell 6.8 percent to 9,400, and electronic flat
knitting machine shipments rose 21 percent to 11,300.



September 2005

Cotton Incorporated Welcomes Murata Machinery President

Cotton Incorporated Welcomes Murata Machinery PresidentCotton Incorporated welcomed Daisuki Murata,
president of Murata Machinery Ltd Japan to its world headquarters in Cary, North Carolina on May
10, 2005. Murata Machinery is recognized internationally as the leading textile machinery
manufacturer for air jet and vortex spinners.  Since 1980, Cotton Incorporated has worked with
Murata Machinery, providing knowledge of fiber selection parameters and preparation procedures
necessary to produce 100% cotton and cotton-rich air jet yarns. This research led to the early
Murata Jet Spinner and the recently developed Murata Vortex Spinner (MVS). The MVS system more
efficiently transfers the air vortexs energy into a twisting action on the fiber bundle, enabling
the machine to spin 100% cotton. The design changes have also improved fabric appearance and
texture. We are impressed with Murata Machinerys technology, and will continue to develop and
implement MVS project work that addresses the needs of the U.S. cotton consumer, said J. Berrye
Worsham, President and Chief Executive Officer at Cotton Incorporated. Murata toured the Cary
facilities, observing the work being done around MVS technology, to improve the hand of MVS spun
fabrics, demonstrating the performance advantages of MVS fabrics.  Cotton Incorporated, funded
by U.S. growers of upland cotton and importers of cotton and cotton textile products, is the
research and marketing company representing upland cotton.

Press Release Courtesy Of Cotton Incorporated
August 2005

Jagenberg AG Is New Kusters Shareholder

Jagenberg AG Is New Kusters ShareholderOn and with effect from 1st August 2005, Jagenberg AG,
Krefeld, acquired 100 percent of shares in the equally Krefeld-based Eduard Kusters Maschinenfabrik
GmbHandCo. KG including all its subsidiaries. The search for a new, strong partner for the future
positive development of the Kusters Group has therefore been completed successfully and according
to plan. Due to a lot of common ground between the companies, both in their corporate philosophy
and in the areas of products and services, the now enlarged group of companies will be able to
provide new impetus for growth.Common ground can be found in particular with Jagenbergs associated
company Kampf GmbHandCo.KG Maschinenfabrik, based in Wiehl-Muhlen. Both Kusters and Kampf occupy
leading positions in theconstruction of machines and plants for producing and finishing sheet
material. While Kampfconcentrates mainly on plastic and aluminium foils, Kusters targets the
textile, nonwoven and paperindustries. There will be further advantages in mutual utilisation of
all the sales and productionlocations of both companies.In Jagenberg AG and its majority
shareholder Kleinewefers Beteiligungs-GmbH (Krefeld) Kusters hasfound an ideal partner which, as a
medium-sized entrepreneur, understands our company tradition and is prepared to invest in further
expansion of our leading market position, says CEO Dr Erich W. Broker, looking into the future
positively. The former shareholders the Kusters family couldnt agree more. They have let it be
known that they believe the Krefeld solution to be an extraordinarily good combination of
traditional entrepreneurial values and clear commitment to further growth.By acquiring Kusters,
Jagenberg took a substantial step towards realising their strategy of leading acompatible group of
medium-sized companies for process machine and plant building. Their capabilities in todays highly
competitive markets, particularly the important Asian ones, are thereby decisively strengthened and
optimised. Stefan K. Kranzbuhler, Chairman of Jagenberg AG, is more convinced than ever that this
is the only way of protecting valuable jobs in Germany, i.e. of earning back their high costs in
the markets of the world.The acquisition of the Kusters Group is a decisive element for achieving a
globally stable size in this very demanding field of work as well as a good balance between
pronounced risks and adequate opportunities.

Press Release Courtesy Of Kusters
August 2005

Performance Fibers Acquires North American Business Of Diolen Industrial Fibers

Performance Fibers Acquires North American Business Of Diolen Idustrial Fibers. Performance Fibers
Holdings, Inc., an affiliate of Sun Capital Partners, Inc., announced today that it has acquired
the North American business of Diolen Industrial Fibers, Inc. The acquisition is a key element of
Performance Fibers global growth strategy and will serve to increase the companys capacity and
distribution of industrial fibers in North America, as well as add fabric capability to the North
American portfolio. The uniting of these two businesses will offer an expansion of high-quality
products and technology to our customers, said Greg Rogowski, president and Chief Executive Officer
of Performance Fibers.We are committed to growing our business for the continued success of our
customers, Rogowski said. Our technology leadership and investments will allow for continuous
improvement of our products, ease the development of new products and applications, and support
continuous R and D investment in this growing marketplace.The North American business of Diolen
Industrial Fibers, Inc. is headquartered in Scottsboro, Ala., where the company has produced
high-tenacity polyester yarns since the early 1970s. It also maintains a fabric converting facility
in Winfield, Ala. Performance Fibers is a leader in the global marketplace and has demonstrated its
commitment to investment in North America with this acquisition, said Lowell Bivens, former
President and General Manager of Diolen Industrial Fibers, Inc.The combination of Performance
Fibers business experience and Diolens technological capabilities will create a strategic alliance
to help customers meet challenges and solve problems, Rogowski said. With a global presence,
technological strength and mastery in the fibers and fabric business, the company has positioned
itself for tremendous growth in the future.We are anxious to leverage the talented management team
at Performance Fibers, said Matthew Garff, Vice President at Sun Capital Partners, Inc. The
management team has worked hard to grow the business by meeting the needs of their customers and
working well with their vendors. We expect that this same level of diligence will be applied to
customers and vendors of Diolen, allowing the combined business to grow and prosper.

Press Release Courtesy of Performance Fibers
August 2005

Pressure Builds On Chinese Trade Deficit

Pressure Builds On Chinese Trade DeficitAs members of Congress become increasingly concerned about
the US $162 billion trade deficit with China, they are putting pressure on the Chinese government
and the Bush administration to take steps that will effectively address the issue. Although China
has announced plans to revalue its currency a major factor in the trade deficit the action was
generally viewed as being far short of what needs to be done. The 2.1-percent revaluation against
the dollar does not come close to what textile and other manufacturing industries have been asking
for. Cass Johnson, president, National Council of Textile Organizations, said the action is totally
inadequate and much more needs to be done. Senators Charles E. Schumer (D-NY) and Lindsey O. Graham
(R-SC) have introduced legislation calling for a 27.5-percent tariff on Chinese goods if
satisfactory action is not taken on the valuation of its currency. That legislation is generally
viewed as a threat rather than something that could be enacted into law.However, the House of
Representatives has passed a bill by a vote of 255 to 168 that would permit US companies to seek
relief from what they view as illegally subsidized goods from China. Among other things, it would
permit the companies to seek countervailing duties on goods from non-market economies such as
China. The US textile industry has long sought that authority after government officials ruled that
anti-dumping and countervailing duties could not be levied against state-run economies.Textile
industry lobbyists and members of Congress are pressing the administration to negotiate a
comprehensive agreement with China that would extend import quotas until 2008, when the authority
to use a safeguard mechanism to impose quotas unilaterally expires. US Secretary of Commerce Carlos
Gutierrez this week deferred action on several safeguard petitions until the end of the month,
saying that would give him time to confer with members of Congress and domestic textile interests
to determine what course of action might be taken with respect to a comprehensive
agreement.Following a series of meetings at the World Trade Organization in Geneva, US Trade
Representative Rob Portman told reporters the administration has internal discussions underway to
determine if it should enter into formal discussions of an agreement similar to what the European
Union recently reached with China .The legislation could be acted upon shortly after Congress
returns from its August recess, depending upon what lawmakers will hear from their constituents
when they are home, and talks with China could come soon.

By James A. Morrissey, Washington Correspondent
August 2005

Negotiations Continue On Textile Trade Agreement

Negotiations Continue On Textile Trade Agreement. Although US and Chinese trade officials have been
unable to agree on a comprehensive textile trade agreement, both sides say an agreement is possible
and they will meet again, probably later this month. Following two days of negotiations last week,
it was apparent that fundamental differences remain, but everyone involved US textile
manufacturers, importers of clothing and textiles and both governments would like to resolve what
has become a highly contentious issue. With Chinese President Wu Jin Tao scheduled to meet with
President Bush in Washington in September, both governments would like to have a pact wrapped up
then. Following the first round of negotiations, a spokesman for the US Trade Representative said,
Both China and the United States will continue to work towards a broad solution that would provide
greater certainty for the textile market. He said the United States would like to reach a deal
soon, but we are not interested in a bad deal. The Chinese Ministry of Commerce issued a statement
saying, Because the two sides still have substantial differences in some matters of principle, the
two sides have agreed to continue discussions on this issue and jointly seek a way to resolve it.An
editorial in the China Daily, which is an unofficial voice of the Chinese government, warned that
the United States should not make what it called excessive demands and suggested that the
negotiators should agree on a pact similar to the one China reached with the European Union last
June. That agreement set annual quota growth of 8 to 12.5 percent on a number of sensitive product
categories. Under the safeguard mechanism that the US government has been using since quotas were
removed last January, there is a 7.5-percent annual growth limit on products that it has determined
to cause or threaten to cause market disruption. US importers of textiles and clothing say that
level is too restrictive, and they would like to see something on the order of 20 to 25 percent.As
the negotiations continued, Laura Jones, executive director, US Association of Importers of
Textiles and Apparel, said: We need some kind of certainty. We need to know if we place orders, we
will be able to bring them in.

James A. Morrissey, Washington Correspondent
August 2005

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