ATMI BUZZ: DEMAND PICKING UP
Byline: Scott Malone
HAMILTON, Bermuda — There’s good news and bad news in the textile industry.
After two years of weak demand and soft margins, volume is starting to pick up for top producers of fabrics and fibers. However, margins remain very tight, and the continuing run-up in the cost of oil is keeping the pressure on.
Given how significantly petroleum costs have risen over the past year, executives are reluctant to speculate on when they might begin to stabilize or how many more rounds of fiber price increases will be necessary.
That was the talk at the American Textile Manufacturers Institute’s annual meeting, which ended its three-day run here on Saturday.
“In general, we believe that the tenor of business has gotten better since early February,” said George W. Henderson 3rd, chairman, president and chief executive officer of Burlington Industries Inc. “Margins are difficult and raw materials prices are going up, but volume is better.”
He attributed the improved volume to the continuing strength of the U.S. retail market and the recovery of Asian economies, which means that “more product is staying in Asia versus a year or so ago.”
The executive said that the Greensboro, N.C.-based mill has experienced recent sales growth “pretty much across the line.”
As far as the continued price hikes imposed by fiber producers over the past year, he said, “The cost increases are real. Everyone sees them, and we really have no choice.”
Burlington has “been able to increase pricing” on its fabrics as a result of the higher fiber prices, Henderson said. He declined to comment on whether it has been able to raise its prices enough to offset the increases in costs.
Terry Geremski, executive vice president and chief financial officer at Guilford Mills Inc., said his company has handled the fiber price increases “with mixed results.”
“We’re obviously wrestling with this from the supply and selling side,” Geremski said.
In the case of specialty products, he said the Greensboro-based company has been more successful in passing along the price increases than with commodity products. Overall, he added that business is “still a little bit weak,” with the company’s intimate-apparel fabrics sales strengthening but swimwear fabrics remaining soft.
“There’s not a lot of consistency across the board,” he said.
On the fiber-producers side, Don Johnson, group vice president for nylon at DuPont of Wilmington, Del., said that the rise in oil prices is likely to continue for some time.
“We look at oil futures to get a feel, and at this point it looks like at the end of the third quarter or in the early fourth, they’ll be coming back down,” he said.
Asked whether those conditions would make further increases in fiber pricing necessary, he responded, “I don’t want to speculate. We’re going to try to recognize that the entire value chain is pressed. But this kind of run-up is not something you can ignore. We expect continuing pressure.”
At KoSa, with headquarters in Houston, Eduardo Rocha said, “We are still being pressured with raw materials increases. It’s like a never-ending struggle.”
Rocha, vice president and general manager of the company’s polyester fibers operation, said that on a number of occasions over the past year, he thought that oil prices had peaked, only to see them rise further.
However, despite the margin pressure, he reported that volume is strong.
“The demand is steady and we’re running our operations at capacity, which helps with the margins,” Rocha said.
He also noted that the company’s new PTT fiber, made of Shell’s Corterra polymer, is starting to meet positive reaction in the market.
Phil Cogbill, general manager of filament at Celanese Acetate, based in Charlotte, N.C., reported that business is “certainly better than this time last year.”
Volume is picking up in the U.S. and Asia, though European demand continues to lag, he said.
He also reported that the rising cost of oil is starting to affect his margins, though acetate’s primary raw material is a not a petroleum derivative.
“We’re the second tier,” he said. “Wood pulp isn’t really affected, but acetic acid is oil-based.”
Last year, following the initial rounds of polyester price hikes, Celanese attempted to raise its prices. Cogbill said that effort was moderately successful.
“There was a lot of supply from other producers,” who did not seek similar increases, he said.
While attendees chatted about sales and margins at the cocktail and coffee breaks at the Southampton Princess, where the event was held, speakers stuck to the event’s main theme: “Textiles 2000: Focus on the Future.”
Top issues in the sessions were changing global trade conditions and new management strategies that textile mills could embrace to advance their competitive position.
The potential of Latin American economies was addressed by speaker Robert P. Forrestal, a former president and chief executive of the Federal Reserve Bank of Atlanta, who now works at the law firm Smith, Gambrell & Russell LLP.
He said that many South and Central American countries have significantly modernized their economies over the past decade and that during the economic turmoil of recent years, their leaders have demonstrated a commitment to free trade.
While 1999 was a difficult economic period for most of the region, he said that conditions are improving and forecasts annual gross domestic product growth rates of 3 to 5 percent across the region over the years ahead.
Forestal said that Argentina, Peru, Chile and Mexico should experience the strongest growth rates over the years ahead, and as those economies continue to expand, he suggested, the region’s consumers will increase their spending on U.S. goods.
“The consumers in those countries are very anxious to have U.S. or European goods,” Forrestal said, although he admitted that low-priced Asian products appeal to the value-oriented shopper there.
However, he noted that there is really no middle class to speak of in the region.
“The disparity between the upper and lower income groups is much wider than in the U.S., but it’s narrowing,” he said.
When asked what effect he thought the U.S.’s trade deficit would have on its economy in the near term, he responded, “The trade deficit is a problem. I don’t think it’s an immediate threat to the economy.”
As far as what might stem the trade deficit, he said, “It would help a little bit if the economy were to slow down…if the consumer were to purchase less, then imports would begin to slow down.”
Addressing the group’s conservative leanings on the global trade front, Robert S. Trotter, an assistant commissioner at the U.S. Customs Service, spoke about the country’s efforts to crack down on transshipment.
In 1999, he said, the agency detained $36 million in importer textiles and apparel that were suspected of being transshipped, excluding $9.6 million in goods; seized $7.6 million in goods, and forced the abandonment of $1.3 million of merchandise.
In addition, it made 11 arrests of people suspected to be involved in transshipment, indicted seven and convicted six.
“Convictions are important,” he said. “That’s the word that gets out into the trade community.”
A total of $63.7 billion of textiles and apparel was imported into the country last year, he said.
Trotter said that this year, textile verification jump teams — whose job is to make sure that foreign factories are actually producing the goods they claim to be, rather than repackaging items made elsewhere — will visit countries including the Philippines, Macau, South Korea and Cambodia, as well as Hong Kong.
He also noted that, just as the U.S. textile industry remains very concerned about transshipped goods coming in from Mexico and Canada, “the Mexicans are very concerned about transshipments through the U.S.”
At a time when the textile industry has been struggling to stay afloat, Oren Harari, another speaker, urged mills and fiber producers to find ways to differentiate their businesses and suggested that the focus be on service.
“It used to be that if we made product that was error-free and defect-free, and charged a fair price, we were assured of competitive success. That’s no longer the case,” said Harari, a University of San Francisco professor and author.
“Start with the idea that you are a customer company that happens to sell textiles,” he said.
The ATMI made some news of its own at the conference. In his farewell address, before turning over the presidency of the group to a successor, Doug Ellis called for the various North American textile-related trade organizations to form a federation, which could be called the “American Textile Alliance.”
“Let’s come together with other associations and see if we can’t find common ground, and make common ground before we go to Washington,” he said, explaining that a larger group would have greater political clout. “Think how powerful we would be if we could put our associations together.”
The call for unity among the diverse voices of the textile industry comes at a time when the ATMI is having some difficulty keeping its own members together on policy objectives.
For example, the textile and apparel community is currently divided on the Caribbean Basin Initiative. The ATMI wants to extend NAFTA-like trading rights to Caribbean nations only if they produce apparel of U.S.-made fabrics, but many apparel makers don’t want to see that as a requirement.
Ellis, who also serves as chairman and ceo of industrial textiles maker Southern Mills, admitted that even within the ATMI there is dissent on CBI.
“We’ve got some people who are members of ATMI who say, ‘Let’s go ahead and liberalize this bill,”‘ he said. “Unity was one of our major objectives this year, and I think we are more divided at the end of the year.”
At the end of the meeting, Ellis handed off the leadership of the group to Roger W. Chastain, who also serves as president and chief operating officer of Mount Vernon Mills Inc. Chastain had served as first vice president of the group.
Charles A. Hayes, chairman of Guilford, was elevated from second vice president to first vice president of the ATMI. Van May, president and ceo of Plains Cotton Cooperative, was named second vice president. All three are to serve for a one-year term.