CITING HIGHER COSTS, EUROPE’S TEXTILE FIRMS PREPARE FOR RAGGED ’95
Byline: James Fallon With contributions from Michael McNamara, New York
LONDON — The squeeze is on.
European fiber and fabric manufacturers — paralleling their U.S. counterparts — continue to be pressed by fiber shortages and rising prices for raw materials that they cannot pass through the production pipeline.
In addition, Europe is dealing with a continuing weak retail climate, making the outlook for
1995 far from rosy.
The price increases — generally averaging 20 to 30 percent — began to hit all fiber and fabric categories around the first of the year. Natural fabrics have risen in price primarily due to fiber shortages; harsh weather conditions and insect infestation have hampered production of natural fabrics — mainly cotton — that are in high demand.
Among the key areas hit with price hikes are:
U.S. cotton, which rose from 65 cents a pound to 84 cents in mid-May, dropped to about 72 cents in August, but is on the rise again. As of Nov. 18, the fiber was hovering at around 78 cents per pound.
Australian wool, from Nov. 25, 1993, to Nov. 25 this year, jumped from $1.53 per pound to $2.73 per pound.
Chinese cashmere, affected by strong demand and an undersupply, has nearly doubled in price since the start of the year, from slightly less than $60 per kilo to about $85 per kilo.
The man-made fibers business has been hit equally hard.
Since January, polyester staple has risen from 68 cents per pound to about 85 cents per pound.
During the past 11 months, the average price of 40 denier type 6 nylon has climbed from $2.10 per pound to $2.20 per pound.
In man-made fibers, particularly polyester and nylon, the increases have stemmed from price hikes of raw materials. The prices of polyester’s key ingredients — glycol, parazylene and terpthalic acid — have all increased in the 30 percent range. For nylon, both type 6 and type 6,6, price increases in adipic acid, caprolactam, butadiene and cyclohexane have been anywhere from 20 to 40 percent.
“The products used in making the fibers are commodity chemicals, used in other markets,” said one fiber company executive. “Glycol, for instance, is a big ingredient in the antifreeze market. Last winter was tough, so there was a tightening of supply, and that caused prices to rise.”
On top of the raw materials increases, some manufacturers — particularly in Italy — have faced wage hikes of up to 30 percent as the European recession draws to an end.
While fabric producers have had to withstand the dramatic increases, they have been able to raise their prices for spring/summer 1995 fabrics an average of only 7 to 15 percent.
They have had to absorb the difference by cost-cutting and searching for new markets to maintain their profit margins.
“The competitive position means everyone has had to work on tight margins,” said Rinze Koopmans, marketing manager at Uco, a Belgian producer of cotton fabrics for sportswear. Uco increased its spring/summer 1995 prices 8 to 15 percent.
“Generally, the closer you are to the final consumer, the harder it has been to raise prices,” said David Ingles, a chemical industry analyst at James Capel & Co. “Consumers are not willing to pay more at retail and that means manufacturers can’t pass all their costs on.”
Industry executives said their customers generally had accepted some increase, although it took most of this year to implement the new prices. What had helped, producers said, was that nearly all countries faced higher raw materials costs, so none had been able to undercut the others.
As the increases hit all industry sectors, fabric and apparel manufacturers found it harder to substitute significantly cheaper fibers. In most cases, manufacturers were taking a long-term view, believing that eventually they would be able to close the gap between those prices and their own.
“We are raising our prices in a staggered fashion; we don’t want to inflict the full cruelty of the raw materials increases all at once,” said Wolfgang Sanwald, a director of Calwer Decken und Tuchfabriken, a German woolen manufacturer.
Andrea Castelli, general manager of Italian cotton shirtings producer Andreazza & Castelli, said he didn’t expect to recoup all the cost of higher raw materials from his domestic customers. The company increased its prices an average of 7 percent, but was able to get only about 4 percent in the Italian market because of the competition, Castelli said.
He added that he was forced to find more export markets, where the devalued Italian lira enables him to get his full price rise. He projected his prices would rise another 2 percent next season, but be flat the following season.
The increases in all sectors corrected a situation that predominated throughout the global recession in the last few years, industry executives said.
Producers said they were so desperate to sell in order to use their manufacturing capacity that they cut their prices to unrealistic levels.
“For example, in the apparel sector, nylon prices in 1992 and 1993 fell 20 percent alone,” said Alan Titus, vice president and managing director at DuPont Nylon Europe. “The material was being sold for below its historical value. Part of the increases recently experienced for nylon 6,6 are simply an attempt to get back what was lost in those years.”
DuPont, whose worldwide fibers business generated sales of $6.2 billion in its most recent fiscal year, had price increases in raw materials of 5 to 15 percent this year — depending on the fiber and the raw material needed to make it; the greatest escalation came in the second half.
DuPont was forecasting raw materials price hikes of 3 to 20 percent in 1995, Titus said, noting that the company worldwide had adjusted to these increases by improving its productivity to lower the amount of raw materials it uses.
DuPont has selectively increased its fiber prices based upon their value, although Titus declined to provide details. In the U.S., however, DuPont has raised the price of both its polyester filament and staple this year, as did Wellman and Hoechst Celanese.
DuPont’s competitive situation has been helped by the fact that all man-made fibers have faced similar increases.
Courtaulds has raised prices for its acrylic and rayon fibers this year and Sir Christopher Hogg, the company’s chairman, warned shareholders at the annual general meeting that the rising prices of raw materials were expected to moderate the company’s profits in the current fiscal year.
Ingles of James Capel said there was a definite squeeze in the production pipeline; chemical makers were successful passing on price rises, but fiber producers and fabric makers were less so.
The irony is that even as they are being squeezed, fiber and fabric producers of all types believe higher prices are a good thing. In an uncertain retail climate, consumers are increasingly willing to pay higher prices only for those products and fibers that have inherent value. The price increases working their way through would help rebuild the value quotient, executives said.
“We are seeking to recapture value, as the recession has taken prices of some products down to unrealistic levels,” Titus of DuPont said.
Aileen Ross, head designer at Scottish weaver Dicksons of Gala, said this was especially true in cashmere.
“It was almost too cheap,” she said. “Now it will become a more expensive fiber.”
“Raw materials prices have always gone in cycles and will continue to do so,” she said. “You just have to accept that and find ways to remain competitive.”