FIBER MAKERS BACK OFF PRICE PUSH
Byline: David Grant Caplan
NEW YORK — The first half of 2001 was tough for most fiber manufacturers, but executives said they expect business to pick up before the year is out.
After almost two years of inching up prices, fiber makers during the first six months of the year largely backed off of efforts to make up for their rising raw materials costs. A few companies even lowered prices.
In the spring of 1999, in response to rising oil prices, major polyester makers announced they would seek to raise polyester filament prices 7 percent to 16 percent. It marked the first of several price-hike rounds to come in both filament and staple. Makers of other fibers, including nylon, acrylic and even acetate — which doesn’t rely as heavily on petroleum as a raw material — were to follow suit.
The story was different this year. Executives also said fiber orders were down, a situation created in part by competition from overseas, a lackluster economy and eroding consumer confidence.
As reported, Wilmington, Del.-based chemical giant DuPont last week said it expects to post second-quarter earnings of 35 to 45 cents a share, below the First Call consensus of 53 cents.
The company, which will release its second-quarter earnings on July 25, cited a “global economic slowdown” for the poor numbers.
But as the second half of the year gets under way, fiber executives expect business to pick up as the U.S. economy begins to rebound.
John Anderson, vice president of marketing for Wellman’s fibers group said, “Business for the first half of the year was disappointing.
“Shipments were off a couple of percentage points from last year, and this was the year we had fairly high hopes going into,” he said. “Particularly in the second quarter our volume of fiber was off because our customers’ volume was off.”
Anderson, of the company’s Charlotte, N.C., fiber office, said Wellman experienced a decline in orders because of “the general ills of the economy slowing down,” including poor sales at retail.
He added that prices “remained relatively stable because they had to be.
“Rising oil prices were definitely the big bugaboo for the first half of this year, particularly in the first quarter,” he said.
At New York-based lyocell manufacturer Tencel, vice president of marketing Ellen Flynn said that during the first six months of the year “sales were down, particularly during the first quarter.”
Flynn attributed the slowdown to a sluggish retail environment, which included overstocked sales floors and thrifty shoppers.
“A lot of that is fueled by a lack of consumer confidence and people were feeling less economically well-off,” she said. “It wasn’t like merchandise was selling when it was marked down — people were just passing it.”
Flynn said the company lowered its prices during the first six months of the year because “business was so difficult” and it needed to remain competitive.
Unlike its polyester producing counterparts, Tencel was not hit as hard by the rising cost of petroleum, since it is not a major raw material of lyocell, though the company of course relies on petroleum for energy.
Bill Scott, business director of textile and automotive products at nylon maker BASF Corp., said, “It was a disappointing first half.
“We continued to be impacted by an overall weak U.S. economy and rising unemployment and dollars spent on utilities and gas,” said Scott, who is based at the company’s U.S. fiber headquarters in Charlotte, N.C. “Those things just combined to make it a very lackluster first half.”
He said dwindling consumer confidence also had an effect on the company’s business.
“The retail numbers in May were the worst in two years and we saw for the first time in several years some spotlighting of intimate apparel as a source of weakness at retail,” he said. Intimate apparel is one of the key markets for BASF’s nylon.
Scott said the company increased prices about 5 percent “where margins were unacceptable.
“We had select price increases in the first half,” he said, “because we had to address the rising cost of ingredients, and there were several areas that prices and margins had just gotten very unacceptable.”
Michael Delaney, senior vice president of business development and strategic sourcing at yarn texturizer Unifi Inc., said, “From an order standpoint, we’ve been down the first half of the year compared to last year.”
Delaney said the company’s first-quarter polyester and nylon orders were down 21 percent and 23 percent, respectively, from first quarter of last year. Figures for the recently ended second quarter were not yet available at press time.
Delaney said there was “a lot of price pressure” during the first half of the year but the Greensboro, N.C.-based company raised prices “in select areas,” as opposed to across the board.
“We tried to do what we could to shore up prices that maybe had dropped below where they should have been, but nothing major,” he said, “just getting some prices back into the area where they needed to be.”
At Houston-based polyester producer Kosa, vice president and general manager of textile fibers Eduardo Rocha said orders decreased “in general between 3 and 5 percent” during the first half.
He said, “the textile market was slow, overcapacity in the industry persisted and imports of garments from the Far East continued growing.”
Kosa also did not increase prices during the past six months, Rocha said.
Steven R. McCracken, group vice president and general manager of DuPont Apparel and Textile Sciences, shared Rocha’s summation: “Business has been tough and below expectations…overcapacity in global spandex, continuing shift of the textile market out of the U.S., ingredient cost pressures — they all compounded one another.”
Another spandex maker, RadiciSpandex Corp., formerly Globe Manufacturing Corp., also had a rough past six months.
After filing for Chapter 11 in January, the company in March was bought out of bankruptcy by Italian multinational The Radici Group.
Bill Girrier, the Fall River, Mass.-based company’s vice president of sales and marketing, said, “The worldwide textile market has been depressed this whole year and there was no market resurgence in March or February, which we normally see.”
He added, “Globe had an added disadvantage of losing a lot of market share because of the uncertainty about our future, so we had to struggle against that.”
Like many other companies, RadiciSpandex lowered its prices.
“We’ve had to bring them more in line with the market,” Girrier said. “The market has been depressed in prices and they’ve been coming down. There are no fat margins in spandex like everybody thinks.”
On the natural fiber side, Cary, N.C.-based Cotton Incorporated president and chief executive officer J. Berrye Worsham said, “The import situation has certainly continued to hurt” U.S. cotton growers and mills.
“The total demand for cotton has been doing very well in the U.S. consumer market but the percentage that is supplied by U.S. industry has been going down,” he said.
Worsham said, “It’s been a very, very difficult time” for U.S. cotton growers because of the fiber’s low price.
“The anticipated large level of inventory of raw cotton that’s going to be on the U.S. market in the upcoming crop years is one of the reasons fueling low prices,” he said.
For wool, Michael Paduano, market analyst at New York-based Woolmark Co., said, “In terms of U.S. dollars, the prices have been the same, basically because of the strength in the U.S. economy compared to the Australian economy.”
Paduano said he expects wool prices to remain stable for the remainder of the year.
“You’ve seen demand exceeding supply, so I would say prices are going to stay relatively firm within the next six months because we are genuinely having decent fashion trends in terms of wool,” he said.
Synthetic-fiber makers also expect prices to remain largely unchanged for the remainder of the year.
Unifi’s Delaney said there will be pressure to increase prices if the company endures price hikes from its suppliers.
But he added, “The market just does not have the appetite for that. We’re certainly going to do everything we can not to have price increases.”
Kosa’s Rocha agreed: “Obviously because of the energy and raw material increases there is pressure, but we don’t see it happening now.”
Tencel’s Flynn said, “We are feeling a little momentum in the market right now, but we’re not really projecting price increases. I just don’t think that would be a wise course to take right now.
RadiciSpandex’s Girrier said he expects prices to “bottom out” over the next six months.
But Wellman’s Anderson said a small price increase may be in store for customers.
“If textile markets firm up, we will see polyester prices trend upward because the underlying push is still there,” he said. “It won’t be huge because it can’t be+at the end of the day we’re all subject to the forces of a global market.”
With most executives predicting prices will remain stable, they are optimistic about the upcoming six months.
Flynn said, “We’re already starting to see a rebound. Our knit business has started to pick up.”
She said the company’s plans to boost sales include “trying to facilitate Tencel garment packages through different supply-chain initiatives.”
Girrier said, “In the middle of August and into September, I believe we’re going to see a rebound.”
He expects the company to “continue to gain market share in a tough market… which is really recovering what we’ve lost in the last 12 months” because of the firm’s bankruptcy filing.
Rocha said, “We expect that the U.S. economy will perform better, so the demand for apparel will be higher and CBI and NAFTA opportunities will grow+but we will see only minor improvements.”
At DuPont, McCracken said, “Certainly we don’t see a continuation of the decline, but it depends which line you’re talking about. On the spandex side business is good but not great. I would prefer great.”
As for the next six months, BASF’s Scott said, “We’re dealing with some big question marks that I’ve just never seen in the industry that are completely external and completely out of our control: What’s going to happen to the economy? What’s going to happen to unemployment rates? What’s going to happen as we approach the second half of the year with energy costs?”