Yarn Market: Going Full Blast

By Jim Phillips, Yarn Market Editor

In early March, yarn spinners reported solid business conditions, with many operating near capacity. “We’re going flat out,” said one North Carolina spinner. “We had a slow start to the year, but business has picked up sharply.”

The strong performance continues a period of sustained prosperity that has lasted for the better part of the past 18 months. “We are not really sure where this is coming from,” said one spinner. “It has been
a period of — at least in recent times — unprecedented stability. Certainly, part of this is a result of increased consumer confidence in the U.S. economy. Consumers are loosening the purse strings a little for the first time since the recession and are spending more on discretionary items.”

For one specialty yarn maker, the current business in-house is just a portion of the potential that is out there. “Right now, most of our business comes from verticals, and we are running a full schedule to keep up with it. But that means there is plenty of other business out there that we can take advantage of. At this point, we see no reason to be anything other than optimistic about the next few months.”

Added another spinner: “We are seeing some programs come back that we haven’t seen in a long time. Part of this has to do with the increasing price of doing business in Asia. In China, for example, wages and costs are rapidly increasing, which is affecting the cost of exported product.”

Rising Costs In China
“The Chinese manufacturing cost advantage has eroded dramatically in the last few years,” Steve Maurer, managing director of consulting firm AlixPartners, said in a recent CNBC interview. “If you go back to 2005, it was pretty common for landed cost from China to be 25 to 30 percent less than the cost of manufacturing in the United States. Based on our analysis, two-thirds of that gap has closed.” A recent study by the firm predicted the cost of manufacturing in China will equal that in the United States by 2015.

Not only are labor costs escalating for Far Eastern manufacturers, but so are the costs of raw materials. While the price for upland cotton in the U.S. has remained relatively stable for the past year — hovering in the 70- to 80-cents-per-pound range — the cost of cotton in China has skyrocketed. Chinese manufacturers are currently paying in the $1.30 range for the same product.

With the high costs of raw material in China, a number of companies are beginning to see the value in exporting value-added cotton to China and other Asian nations. Even so, the bulk of U.S. textile exports are headed for Central America. Said a Carolinas spinner: “We’re running a full schedule, and demand is high. Exports make up a significant portion of our total business volume, and we expect demand for cotton to continue to be strong to the next quarter.”

Yet, for all the optimism, the specter of the Trans-Pacific Partnership (TPP) still looms over the industry. At issue is whether or not Vietnam will be allowed into the partnership without a yarn-forward rule. Industry observers are confident at this moment that such a rule is part of the agreement, but are concerned that ongoing negotiations could change that. Lack of a yarn-forward rule would allow Vietnam to flood the U.S. market with apparel made with yarn from China.

The last round of TPP negotiations broke down on February 22 as a result of disagreement over agricultural tariffs. “Without a yarn-forward rule, the TPP could be the most devastating thing ever to happen to the U.S. textile industry,” one spinner said.

U.S. Cotton Prices Remain Stable
Spot cotton quotations for the base quality of cotton in the seven designated markets measured by the U.S. Department of Agriculture averaged 82.93 cents per pound for the week ended Feb. 27, 2014, down slightly from 83.51 cents reported the previous week, but up from 77.37 cents reported the corresponding period a year ago. Spot transactions reported for the week ended February 27 totaled 22,359 bales. This compares to 28,588 bales the previous week and 18,900 bales from the same period a year ago. Total spot transactions for the season were 1,189,635 bales, compared to 1,491,740 bales the corresponding week a year ago. IntercontinentalExchange May settlement prices ended the week at 87.81 cents, compared to 87.65 cents the previous week.

March/April 2014