Optimism Abounds

W hat a difference a year makes. At the dawn of 2009, yarn spinners were hoping to scratch out enough business to survive. As 2010 begins, they are optimistic that the best year in some time awaits them.

"Business is stronger than expected," said one spinner. "We are seeing program business coming back to the hemisphere. Inventories are lower than ever in the supply chains we participate in, and business is getting better. Business cycles appear to be returning to normal. Spring is going to be very good for us. Almost all segments -- knit apparel, woven apparel, military -- are better. Pricing has moved up, and we are able to choose the business we are taking for the first time in a long time. The market is probably as strong as 2005-06. We could even be looking at a market more like 1997-98. I just really don't think retail will let the inventories go up, and the best way to control that is to source more in this hemisphere, which they appear to be doing." 

Added another spinner: "We are pleased with the stability of our operating schedules as we begin 2010. We are also pleased with the volume of business opportunities presented to us, which is more than we would typically expect for this time of year, and certainly much more than this time one year ago."  

Despite their optimism, spinners say there are still challenges to overcome.

"Credit is a real problem," said one spinner. "The survivors all have a lot of business opportunity, but most don't have money to take full advantage. Also, with the run-up in pricing, orders are strong, but are the customers passing this through? Cotton may be the single-largest threat. Business is strong enough to withstand a drop in cotton pricing, but a significant increase would be difficult."

Another spinner said significant raw material cost increases are an issue: "Successfully passing along these costs, particularly during a difficult retail environment, requires that we be sensitive to our customers' business issues."

Capacity Issues

Several spinners have raised the issue of domestic capacity. With the steady decrease in the number of U.S. spindles, will revived demand outstrip the ability to produce? One spinner's view: "Will we be oversold? Yes, we will be. That opens up the opportunity for short supply petitions, and we need to fight those.  It would be a travesty if the U.S. government let everyone cheat and run Stowe, Ramtex and others out of business - and then the rest of the industry is wiped out because we can't make enough to meet demand!"

Said one specialty spinner: "For us, product capacity is occasionally an issue, especially when lead times are unsupportive to business development. Interestingly, limited capacity, if managed successfully, may offer a strategic component for customer partnerships."

Spinners are understandably cautious, however, about expanding capacity or investing substantial sums for modernization early in a recovery cycle.

"We do have plans for modernization," said one spinner, "but we probably won't expand this year. I think all spinners will wait to see if this uptick in business is a paradigm change or just a flash. I personally think the playing field is fundamentally different, and business will be good for 18 to 24 months and potentially longer. Capacity in India and China is down, and Pakistani yarn sales are not meeting local vertical demand. Chinese and Indian domestic markets are growing, making them less dependent on the U.S. retail market. There have been 18 spinning mills or more closed in the United States in the last 24 months, and I think it is unlikely more than one or two of these will start back up. In Central America, several spinners closed. And while there has been some expansion, there is still a net loss in production. If we are seeing business return to 2005-06 levels, there is not enough yarn to support it, which will drive up prices and, hopefully, profits. The weak dollar and higher energy and transportation costs are making imports more expensive, so we can compete with higher prices."

One spinner succinctly summed up his feelings about the possibilities for 2010: "I am probably too bullish, but we have had so little hope for so long, it is hard not to be a little optimistic -- to keep from feeling crazy for staying in this business. Maybe this is why we are still here -- because this is going to be a great period for textiles in the United States."