Demand Strong, Capacity Available

he momentum that is carrying many yarn spinners forward to what could be their best year
in recent memory continued through the first two weeks of August. Spinners from multiple sectors
report strong orders and are cautiously optimistic that business will remain good through the rest
of the year.

However, the pressure on capacity that was so much of an issue a few months ago seems to be
easing somewhat. “It seems that most of the panic buying is over,” said one spinner. “This
desperate attempt to refill pipelines that had gotten so empty seems to be over. Everybody rushed
in to restock their shelves earlier in the year, and that put a lot of pressure on being able to
fill orders on time. We’re still running strong, but we have room for new orders.”

An executive from a major Carolinas spinner agreed: “Our business continues to run at a
level that we’re satisfied with. A few months ago, we couldn’t take any new orders. Now, we have
some capacity available, but not anything to be overly concerned about. The biggest thing going
forward is that the depth of the business is not as much as I would like it to be, but we’ve been
living with those kinds of issues for a couple of years now. There are few times that we see
long-term contracts.”

Depth is an issue for other spinners, as well. “We have some business in-house that goes out
a few months,” said a specialty spinner, “but most of our orders are short, and our customers still
expect quick turnaround.”

Depth of business is impacted by the high rate of unemployment in the United States, one
spinner noted. Retailers are understandably hesitant to overstock in light of uncertain future
purchasing power. “You have to be concerned with the high rate of unemployment in this country and,
especially, those who have given up looking for jobs,” he said. “They don’t have jobs, their
benefits are running out, and they don’t have credit availability. At some point, these folks are
going to just quit buying at retail. We are certainly concerned about how this will impact business
down the road.”

Orders for natural yarns seem to be strongest at the moment, said one Southeastern spinner,
while demand for package-dyed yarns is still relatively weak. “I’ve talked with a number of other
package dyers over the past few weeks, and they all say they have excess capacity,” he said.

Pricing, Credit, Materials Still An Issue

Even with the relative lack of spinning capacity, customers are still putting pressure on
spinners to hold the line on yarn prices. “Despite the increases in prices from China as a result
of higher-cost labor, fiber increases and the overall cost of doing business in the Far East, we
still see retailers just fight, fight, fight for cheap prices,” said one spinner.

Another spinner said: “We’re still finding credit availability to be an issue for some of
our customers. It’s hard to borrow money if you are not golden. Banks have not substantially
loosened their requirements, despite the appearance of an economic recovery. Going forward, this
could be an issue that has tremendous impact on business.”

“The cost of raw materials continues to be an issue,” noted one spinner, “although we’ve
seen some slight decreases in the past several weeks. But, with the pressure from our customers to
maintain prices, material cost has the potential to have a big impact on the bottom line.

“Overall, though, we’re doing well,” he continued.  “I believe the opportunity is there
for spinners in this country — those of us that are left — to do okay going forward.”

August 2010