Man-Made Fiber Producers Stress Innovation

an-made fiber producers squeezed badly by rising raw material costs have managed to push
through some price increases this year. They want and need additional hikes just to stay even, but
may wait a bit to let customers catch their breath.

“We would all like to think that oil prices have peaked,” said one fiber executive. “There
continues to be a tremendous amount of pressure on margins. If you make polyester, you are a whole
lot worse off from a unit cost standpoint than you were this time a year ago.”

One texturizer thinks man-made fiber prices have leveled off. “If oil stays below $40 per
barrel, I think we’ve seen the increases that we are going to see.”

In addition to higher oil prices, fiber producers have had to contend with strong Asian
demand for raw materials PTMF, paraxylene and MEG. Strong demand for PET bottle resin also has been
a factor.

At least one fiber executive predicted an additional man-made fiber price increase shortly
because raw material prices show no signs of abating.

Beyond Quotas

The man-made fiber industry’s crystal ball appears to be just as murky as the ones yarn
spinners, cotton merchants and cotton growers are using when it comes to predicting business
conditions for 2005. However, man-made fiber managers as a whole seem a bit more optimistic and
feel that new product development will shield them from at least some downward price pressures.

“The question is, how competitive are you? How competitive is your customer versus what the
ultimate retailer can get the product for in the world, which means China?” one fiber executive

“With all the mill closings in 2003 and 2004, you’d like to think the nugget that is left
will continue to run. From there, you can write any scenario you want. Personally, I think we’ll
have a fairly chaotic first half [in 2005]. By the time [any warning lights] come on, it will be
this time next year. So the horse will be well out of the barn before anyone says ‘we ought to look
at putting some restraints on China,’” he added.

Another man-made producer was more upbeat about the post-quota business environment, pointing
to the recent China safeguard petition from the sock producers as one positive sign
(See “
Textile World News,”
TW, this issue)

While the uncertainty around 2005 is expected to be problematic in the United States, many
industry insiders expect it to be far worse for small countries such as Mauritius, Seychelles,
Bangladesh, Madagascar and others that will no longer have quotas to protect their share of the US

“I’ve been saying for years that the federal government has been leading a lot of smaller
countries down the primrose path with all of these free trade agreements,” a texturizer said. “
[C]ome January 1st, the big giant, China, will take over and knock all these free trade agreements
out the window.”

Focus On Specialty Fibers

As the 2005 quota phase-out draws near, interest in specialty products and niches multiplies.
Or, as one fiber executive put it: “ Just about everybody, including my company, has gone to
extraordinary lengths to diversify their global base. If you are going to make any money, you have
to sell proprietary products to global markets because there is no game selling commodities

One texturizer reported a lot of interest in solution-dyed yarns — especially nylon for
upholstery, intimate apparel and socks. This appears to be a growing market and may be reasonably
import-proof given the difference in lead times. Domestically, it takes three to four weeks to get
solution-dyed yarns to the customer. Add seven weeks on the water, and projecting colors accurately
becomes extremely difficult.

“There is still a niche out there for the small specialty texturizer. We expect that to
continue,” he said.

Another fiber producer said his company was constantly developing new yarns and looking for
new opportunities.

“We are focusing our product development efforts in areas like anti-microbial,
moisture-management and stretch yarns,” he said. “Plus, we are trying to develop a yarn that has a
combination of all three of these features.”

August 2004