I
nternational trade concerns — both short-term and over the longer pull — continue to
plague mills. Looking at the current year’s outlook first, all signs point to an increase in
incoming shipments — reversing the small, recession-induced slippage noted last year.

To be sure, there are some restraints that will limit any advance, including: the lobbying
efforts of the new American Textile Trade Action Coalition (ATTAC); and expectations of a somewhat
weaker dollar, which could soon make imports more costly. Nevertheless, improving U.S. consumer’s
demand should outweigh these positives and make some import gain inevitable.

How much gain? At this point in time, our projections suggest about a 3- to 5- percent
textile and apparel increase on a square meters equivalent (sme) basis. Not good, but a lot better
than the steady tattoo of double digit advances that prevailed as recently as 2000.

China: A Long-Range Question Mark


But of even bigger concern is the question of what happens in early 2005, when virtually all
quotas are eliminated for World Trade Organization (WTO) countries.

One fear is that China (already the top and fastest growing exporter to the United States)
will at that time become an even more potent competitor of low-cost, high-quality textiles and
apparel.

Point to keep in mind: China’s expertise and manufacturing sophistication already equals or
even tops that of other exporters in both Latin America and the Far East. Upshot: More big changes
in trade flows are inevitable.

Some Indications Of A Turnaround


On a somewhat more optimistic note, there’s a growing consensus that recent declines in
domestic mill output are over. The feeling is that totals are likely to hold near current levels
for the next few years.

Indeed, there are already signs of some bottoming out. Textile purchasing executives now say
they are experiencing increases in both new orders and shipments. Equally significant is the jump
in the textile mill workweek — from 40.3 hours a year ago to 42.1 currently. And, as pointed out in
previous columns, the textile inventory glut continues to fall significantly — making it
increasingly likely that new orders will be quickly translated into new production.

Zero in on individual fabrics, and the picture is also looking somewhat brighter. Thus
denim, after a very poor second half in 2001, is again moving well — helped by a growing number of
new fabric finishes. Khaki is also making a comeback with novelty looks, better quality and new
stain-resistant qualities. Dress shirt fabrics are perking up, too — as the trend toward “dressing
up” intensifies.

More Thoughts On Costs


A new DRI-WEFA study on costs also has to be regarded as quite encouraging. The big
econometric consulting firm, taking a look at the textile mill industry, finds that input costs
(including both services and materials) is now lagging year-ago levels by a percentage point or
two.

Much of this is due to the very modest labor hikes, which are now more than being offset by
productivity gains. And the picture is much the same for materials where cotton weakness has more
than compensated for some recent pickup in polyester quotes.

Moreover, all this good news is projected to continue. To be sure, the DRI-WEFA study does
see an end to cost declines.

On the other hand, its new forecast is still basically upbeat — calling for only about a
1-percent-or-so annual increase in material and service costs over the next year and a half.

A Closer Look At Overall Demand


A slowly strengthening economy would also seem to bode well for the industry. Current
consensus calls for about 3-percent GDP growth at the annual rate over the next few quarters.

This, in turn, should help make for similar rises in consumer incomes and spending levels.
Aiding gains will be such additional fillips as little or no price inflation, continuing low
interest rates, and a still-booming housing market. The latter not only is feeding demand for home
furnishings, but is also allowing homeowners to tap into home equity for spending.

Lastly, this robust home market is keeping household net worth at or near peak levels
despite a still-weak stock market.

Factor these pluses into the textile equation, and it may well explain some of the cautious
optimism being voiced by industry analysts and executives.



July 2002

T
hat seems to be a common theme among most respondents — volume continues to increase, but
margins are very tight. “Things are going pretty darn good right now,” said a spinner. “Margins are
tough, but that is to be expected. It seems that whenever you have gone through a trough or low in
the economic cycle, volume comes back before margins. So I would expect margins to be on the way
back, soon. When? I don’t know, but the sooner the better for some of us.”

Another spinner responded, “We are busier than we have been in over a year. But you must
remember that we are a different company. We have fewer plants and fewer people; a lot of things
have changed. But we are working flat out. Margins are tight. We are trying to cover increases in
raw materials cost, so we are getting closer to our asking price.”

Margins are back for some. A yarn buyer said, “I have heard that margins are tight for
spinners, but I know that business is very good for some. In fact, it has become so good that two
spinners turned down orders during the past couple of weeks. Prices for some of the yarns that I am
buying were up 4 to 6 percent in the past few weeks.”

Retailers


We have heard much about the Wal-Mart/KMart mentality in recent months — the way they search
the globe looking for the best possible price. Textile manufacturers are quick to say that
retailers and their global sourcing is part of the reason for what has happened to the textile
industry. These retailers have no loyalty to or for American-made products. And we all agree this
is probably true.

This searching the globe for the best possible price is not unique to Wal-Mart and KMart
types. It is also a strategy for the privately owned local retailers around the country. A visit
was recently made to a favorite retailer that has been in business for many decades.

While shopping and browsing, Yarn Market studied a large number of garment tags. Results of
this survey were somewhat surprising. In the menswear area, the line for one of golf’s favorite
players was featured.

These beautiful golf shirts ranged in price from $70 to $100. Would you like to guess the
country of origin on the label? Well, if you guessed Indonesia, India, the Philippines, Korea or
Malaysia you would be right. Put them back!!!

From the Internet — an article about American Airlines indicates the company is getting new
uniforms. So, it is only natural to ask, where were these uniforms made? After several calls to
various American Airlines offices, Yarn Market found they were “Made in the USA.” Sounds like
something positive for American Airlines. Maybe this is an opportunity for the textile industry to
support one of its customers — fly American.

Raw Material Prices Moving Up


Quotation for the base quality of cotton (color 41, leaf 4, staple 34, micronaire 3.5 to 3.6
and 4.3 to 4.9, strength 26.5 to 28.4, uniformity 81) in the seven designated markets averaged
33.64 cents per pound — up from the 29.43 cents per pound reported last month, and down from 49.19
reported for the corresponding week a year ago.

Polyester prices moved up to 55 cents per pound (1.5 denier) —up from the 53 cents reported
last month and down from the 60 cents reported for the corresponding week last year. Most
indications are that fiber demands are increasing. Mills are beginning to show more interest in the
2002 cotton crop, so prices may continue to edge up.

Yarn Price Comparison


Recently, while surfing the Internet, Yarn Market found an article from Pakistan. Listed in
a table were prices for carded and combed 100-percent cotton ring-spun (RS) yarns f.o.b. Karachi. A
comparison of these prices with U.S. prices shown on the facing page is very interesting.

For 10/1-carded RS 100-percent cotton yarn, the Karachi price is 37 cents per pound less,
$0.73 as compared to $1.10. For 24/1 and 30/1 carded RS 100-percent cotton yarns, the Karachi
prices are 48 and 50 cents per pound less, respectively. For combed RS 100-percent cotton yarns,
the differences are similar.

Shipping would add 5 to 10 cents per pound depending on the size of orders. Why is there
such a difference? Cheap labor is one reason.



July 2002