Spinners Search For Business; Pricing Pressures Remain

The first quarter of 2012 was well below the hopes and expectations of many spinners.

“We’ve been really disappointed in the activity for the first part of the year,” said one
Carolinas spinner. “There was a spike earlier in the year — a very brief one — that gave us hope
that things were turning back around. But it was very short. Since then, orders have been very slow
and very small.”

Another spinner said: “At first, we thought the whole industry was going through an inventory
adjustment. Last year was so wild, and many customers took positions well beyond their needs just
to make sure they would have product when they needed it. I think many of us expected a time when
everything would adjust. There would be a slow period while all of this excess inventory was
cleared, and then business would get back to normal. But, it still hasn’t recovered, and we are
past the time I would have thought it would take for an inventory adjustment.”

A yarn broker who buys and sells in the United States and Central America said he has noticed
increasing competition from Asian suppliers. “Last year, companies from China, India, Pakistan and
other eastern nations were caught up in the same raw material shortages that affected us here in
the Western Hemisphere,” he said. “As a result, they focused more on making sure they could meet
the needs of their domestic markets. Now, with raw material prices and availability back to about
where they were before the spike, these companies can be more aggressive in pursuing business over

As bad as demand is in the United States at the moment, it’s even worse in Central America,
said one multinational spinner. “There really isn’t anything coming in right now. We went from
running flat out and losing ground in our production schedules to the point now where we are
scurrying around for any business we can find.” Customer credit remains a big issue in Central
America, he said. “A number of customers are in need of product and would buy it, but they cannot
get the financing.”

Said another spinner: “We’ve been in the fortunate position in the past of being able to
extend credit ourselves to some of our customers that could not obtain traditional financing.
However, when retail sales fall flat and there is tremendous pressure on margins, you have to be a
lot more careful. Any number of companies have fallen by the wayside by overextending in this
fashion. So we are trying to make sure we err on the side of caution.”

Cotton Prices Continue To Plummet

Price continues to be an issue and, as one yarn broker noted, will continue to be “as long as
some spinners have an inventory of raw cotton that was purchased at a cost significantly above the
current market price.” As a gauge of how fast and far prices have fallen, the U.S. Department of
Agriculture reported for the week ending April 12, 2012, that spot market quotations for the base
quality of cotton in seven designated markets had fallen to 83.88 cents per pound. That price is
more than 110 cents per pound less than the corresponding week of 2011.

“We keep trying to balance our prices with what we think the market will bear,” said one
spinner. “But things have been all over the place for the past nine months, so it’s a constant
struggle right now.”

Added another: “We have been able to pass through some of our costs, but we just haven’t been
able to do it as consistently as we would like. Customers look at what you are asking and then look
at the current cotton prices. It’s just a battle.”

“It’s easier when you’re pricing a new product for a customer,” said one spinner. “But, when
you try keep prices up with existing customers, who have ridden out the volatility with you, there
tends to be a lot of resistance. We tell them that our prices didn’t go up as quickly as the price
of cotton last year, and that it is now going to take a while for them to come back down.
Eventually, we will reach that equilibrium point. But we are not there yet.”