Will 2012 Be A Repeat?

Orders continued to be relatively slow for many spinners in December,
particularly in open-end (OE) yarns.

“It was softer than I thought it was going to be, but not nearly as bad as a lot of people
feared,” said one yarn broker. “But it certainly was not a repeat of December 2008, which is what I
think a lot of us had feared. When things started really slowing down in November, I think a lot of
people said, ‘Oh my gosh, the end of the world is coming.’ But it wasn’t the end of the world, and
business began to pick up a little at the beginning of January.”

A spinner added, “I think there was some concern that the business cycle was beginning
another significant downturn. Beginning about mid-year, we saw orders begin to level off. As
business steadily diminished, I think we all saw some cause for concern. However, orders began to
pick up somewhat at the beginning of January, and the fact that cotton prices have begun to trend
up again gives spinners hope that some relief from price pressure may be on the horizon.”

Hopes For Pricing Stability

Quotations for the base quality of cotton in the seven designated markets measured by the
U.S. Department of Agriculture averaged 90.03 cents per pound for the week ended Thursday, Jan. 5,
2012, up from 85.42 cents the previous week. At the same time last year, cotton averaged 135.77
cents per pound.

“A number of spinners are still dealing with pricing issues,” said one industry observer.
“As cotton prices began a freefall, retailers really began to put the screws on the supply chain,
and that was before anybody was really into the new raw material yet. There are still mills out
there that have an inventory of $2.00 cotton. However, the price of cotton began to rebound a
little bit at the end of December and into the first week of January, and that seemed to give a
little boost to pricing. If we see some stability over the next few weeks, I believe a lot of
customers will feel they can go ahead and place orders.”

Another spinner agreed: “About the last thing customers wanted to do was to place long-term
orders while the price of cotton was still falling. Hopefully, we’re beginning to see some degree
of equilibrium beginning to emerge.”

But some spinners are concerned that the rebound in cotton prices may be an overcorrection.
“But what we certainly won’t try to avoid, if at all possible, is a repeat of what happened last
year,” said one spinner. “As raw material prices began dramatically increasing and the supply of
raw material diminished, customers began taking positions so that they could guarantee they would
have product when they needed it. When the bottom fell out of cotton prices beginning mid-year,
those longer-term orders were no longer very attractive.”

OE Weak, But Poised To Improve?

The demand for OE continues to be weak, especially for commodity yarns, but signs point to
some improvement over the next few weeks. “I didn’t write any OE business in late December,” said a
yarn broker. “But beginning in early January, I began to have a lot of inquiries. What I am hearing
is that, in commodity counts, there still seems to be a lot of price pressure and a lot of
inventory. But in non-commodity counts, all of a sudden there’s a two-week lead time or longer.
Just a short time ago, if you ordered on Monday, you could have it on Thursday.”

Ring-spun yarns, as has been the case for the better part of two years, continue to be in
relatively high demand, spinners report. “Ring-spun is tight all over the world at the moment,”
said one yarn importer/exporter. In the United States, I think we are at the point where demand, at
least in normal times, exceeds capacity. I anticipate ring-spun to continue to be strong, at least
through the first quarter and, likely, longer.

Another spinner added: “Overall, the outlook seems to be a bit better than it was a month or
two ago. I see business picking up. The big players are starting to place orders again. These
orders are smaller than in the past, maybe four or five containers instead of 10 or 15. But the
fact that they are beginning to replenish their stock is an encouraging sign.”

January/February 2012