NEW YORK — Fiber producers don’t need a crystal ball to see what issues are going to be paramount to the industry next year.
Producers are keeping a wary eye on the costs of raw materials, especially oil, and the Jan. 1 elimination of apparel and textile quotas by the 148 countries of the World Trade Organization.
The twin issues are “really creating an enormous headache,” said Bill Ghitis, president of global apparel for Invista, the former DuPont unit acquired by Koch Industries in April.
“I don’t think we’ve ever lived though something like this,” said Ghitis, of the increases in raw material prices, which means oil for fibers such as Invista’s Lycra spandex. “Overall commodity prices have reached what I would say were unsustainable levels. We have little choice but to try to pass them on because we are talking now [about] financial survival.”
The producer price index for synthetic fibers, which measures overall shifts in pricing, rose to a three-year high of 107.5 in October, according to the U.S. Bureau of Labor Statistics.
Ghitis added that the $8.4 billion synthetic fiber producer is relying on its economies of scale and global presence to help offset rising costs.
Crude oil closed out last week at $42.54 a barrel, up from about $30 a year ago, according to WTRG Economics.
Increased consumption, a lack of new production capacity and unrest in the Middle East have all contributed to the volatility of oil prices.
As costs for producers have risen, consumers and the rest of the supply chain from retailers to manufacturers are pushing for ever-lower prices.
“The squeeze is getting so unbearable that, at some point, people are being forced to stand up to the people downstream,” said Bill Girrier, vice president of marketing and sales at RadiciSpandex, which produces about 5 percent of the world supply of spandex.
Girrier said the spandex maker is looking to limit its exposure to both pricing stress and any fallout from the drop of quotas by systematically getting into niche markets, such as higher-end fibers for warp knits or heat-resistant spandex.
Girrier said that by positioning itself as a boutique producer, RadiciSpandex can better fend off the larger producers who play more of a volume game.
Synthetic produces aren’t the only ones facing pricing challenges.
Cotton is working its way though excess supply from an unusually large worldwide crop, said J. Berrye Worsham 3d, president and chief executive of Cotton Incorporated.
“Cotton prices have come down over the last six months or so because we have so much cotton in the world market,” he said. The world crop this year came in at about 112 million bales, exceeding demand of 103 million bales.
In October, cotton delivered to Southeastern region mills cost 48.3 cents a pound, according to the Agricultural Marketing Services of the U.S. Department of Agriculture. A year earlier, a pound sold for 74.3 cents.
The excess inventory and lower prices should mean higher demand for cotton, Worsham suggested.
Increasingly, the demand for U.S. produced cotton is coming from overseas.
On average, about 70 percent of the domestic crop of cotton is exported, Worsham said. That percentage is expected to increase with the dismantling of the quota system that has regulated world trade for decades.
“It’s still going to be a new game in 2005, when you look at how the Western Hemisphere competes against Asia,” Worsham said. “Post-2005, it’s going to be tough for this hemisphere to compete. We’re not going to go away, but the share gains are going to be in Asia.”
For 2005, though, he said the impacts of the shift could be stunted by the threat of the implementation of temporary safeguard quotas on China to help avoid market disruptions. He reasoned that, faced with the potential of safeguards, many companies will choose to keep their sourcing networks diversified.
Safeguards aside, the long-term shift to Asia as the emphasis of the fiber market is apparent.
“There are going to be some hiccups through the transition, but they are just that,” said Brad Miller, commercial director for Dow Fiber Solutions, which markets Dow XLA elastic olefin. “People will continue to evaluate, if you will, and make their sourcing decisions very carefully, making sure their supply of fabrics and garments do not get disrupted throughout this process.”
Even with an expected influx of goods from Asia, once the dust settles and the post-quota world takes hold, domestic fiber suppliers will look to their geographic proximity to the end consumer for advantage.
Such is the case for Nilit America Corp., which produces nylon for hosiery and seamless apparel.
“A lot of our markets are niche markets, where being close to the market and being able to supply stores at a 99 or 98 percent rate is important enough where we’re not going to see a big influx from China,” said Nilit America’s president Karen Johnson.
The 99 or 98 percent she refers to is the performance rating now given to suppliers by megaretailers such as Wal-Mart Stores and Target Corp.