FIBER PRICES STILL SOARING
Byline: Scott Malone
NEW YORK — The continuing high cost of petroleum, which is beginning to inject a touch of uncertainty into the U.S. economy, is also keeping the synthetic-fibers business on edge.
This isn’t entirely new — it’s been over a year since domestic makers of polyester filament sought their first round of price hikes — but industry officials said they’re surprised at the magnitude of the continuing run-up in oil prices, which in turn is driving up the cost of their raw materials.
So, as economists wonder how big a chunk the spike in gasoline and electricity prices will take out of consumers’ spending on other products, fiber makers try to figure out what they’re going to do to keep their margins up.
But given that most fiber executives say they haven’t managed to offset the cost increases they’ve already experienced and that they expect their costs to continue to rise in the months ahead, they say that further price hikes seem all but inevitable.
On Monday, Wellman Inc. said it would raise its prices on branded polyester filament by 6 to 13 percent, beginning with Sept. 1 shipments. In a statement, group vice president of Wellman fibers John Hobson said, “It is necessary, at this time, to raise the price of our polyester filament fiber in order to reduce the losses we have experienced.”
At DuPont in Wilmington, Del., Harry Parker, vice president and general manager of the Dacron polyester business, said that after last year’s oil-price surge, the company had not expected further increases.
“We had expected them to at least level out.” Instead, he said, “We have seen four consecutive quarterly increases. That is putting a lot of pressure on us and our downstream customers.”
DuPont has continued its efforts to recoup those rising costs, most recently by announcing in late June an 8 to 10 percent hike in nylon prices, followed up by a 5 to 15 percent boost in polyester filament prices last week. That increase in filament prices marked the fifth such hike the company has sought since May 1999. It has also sought four rounds of staple increases, as have fellow major polyester makers KoSa, Nan Ya Plastics Corp., America, and Wellman.
Parker said the company has had “marginal success” so far in getting the increases it has sought. But he added that the increases it’s achieved so far have not been enough to offset cost increases.
That fact, coupled with the continued increase in raw-materials costs, leads Parker to believe that further hikes are likely.
“As new ingredient-price increases continue to come along, we’re going to try to pass along as much of that as we can,” he said. “It really makes it difficult for us and for our customers, too, who are having an equally hard time in passing along the increases through the value chain.”
Mills initially scoffed at the idea of paying more for fibers, particularly since the initial hikes were announced at a time when the textile industry was only just beginning to recover from the downturn caused by the Asian economic meltdown. However, over time, they have begun to accept them, sources said.
Wellman has been largely successful in getting the multiple rounds of filament and staple hikes it’s sought so far, according to John Anderson, vice president of marketing at the company’s Charlotte, N.C.-based fibers operation.
“We’ve worked with our customers on the timing of them, but by and large we’ve achieved them,” he said. “The problem is they’re not enough.”
Anderson noted that, in addition to higher raw-materials prices, Wellman and other fiber makers have had to pay higher energy costs to keep their plants running. It hasn’t yet been able to raise costs to reflect those increases, he added.
Similarly, Eduardo Rocha, vice president and general manager of polyester fibers at Houston-based KoSa, said, “We’re facing right now additional raw-materials increases, and we haven’t finished dealing with the first round. I don’t see this trend stopping.”
While much attention has been paid to fiber makers’ efforts to raise prices, they’ve also been working to cut their operating costs to offset the effect of raw-materials increases.
Bill Scott, business director of textile and automotive products at BASF Corp., who works out of Charlotte, said, “We’ve looked at every process at every plant that we have that’s producing nylon. We’re trying to squeeze out all the efficiency that we can.”
But cost-cutting is not enough to offset higher materials costs. He said, “There have got to be some price increases. We cannot just do it with cost cutting and cost containment.”
BASF on Jan. 1 and then again on March 1 raised its nylon prices and is considering whether to try for a third round.
Scott said that he was sympathetic to the problems that fiber-price increases are causing for mills, given that apparel makers are unwilling to pay higher fabric prices. But, he said, fiber companies have no choice.
“We are just being hammered, we really are,” he said. “We are completely cognizant of the downstream issues, from garment manufacturers into retail, but there has got to be some relief.”
Squeezed between the enormous fiber manufacturers, who have the muscle to push price increases through, and mammoth retailers who likewise have the clout to refuse to pay more, mills and converters have taken a stoical approach to the situation.
Where they can, mill officials say, they are turning to alternate fiber and yarn sources that are not seeking hikes. When that option doesn’t pan out, they are by and large taking it on the chin.
One company that sought to take a different approach to the price game is Burlington Industries. In June, saying that its fiber costs had run up by 5 to 30 percent over the past year, the company’s Performance Wear wool and synthetic fabrics operation said it would try to impose a 10 percent price hike.
However, two weeks later, the company was singing a different tune. In warning that its results for the second half would miss Wall Street forecasts, the company said that its Performance Wear unit was losing steam, particularly in its European operations. That had company officials reconsidering whether to proceed with the hike.
Other mills haven’t even considered being that bold.
James Martin, president of apparel fabrics at Dan River Inc., of Danville, Va., said that current market conditions make it impossible to raise fabric prices.
“The market determines the pricing on commodity products and fabrics,” he said. “Just because we get an increase on the fiber side doesn’t mean we can go out and recoup it. I can’t do anything about it.
“My customer is not able to pay an increase for commodity fabrics and prefers not to in made-to-order, but those decisions are made as we go. Pressure on pricing is very difficult and that’s the way it is. You have to learn to get your costs in line.”
George Shuster, chairman and ceo of converter Cranston Print Works Co., of Fletcher, N.C., sounded a similar note when he said: “There is no doubt that raw-materials prices are increasing now, so there will be an impact on margins. The ability to pass on a price increase remains difficult at best — more accurately, impossible.”
For Shuster, the reluctance of fabric buyers to accept the fact that rising oil prices are driving up costs is particularly frustrating. His company also runs a trucking concern, and in the trucking business, he said, the volatility of oil prices is accepted by customers.
“We’ve had the same issues in our trucking business, with diesel costs. But everyone recognizes that somehow,” he said. “On the textile side of things, we have to think of cost savings in other areas.”
Shuster and other mill officials may well have to keep their eyes on cost for some time, as fiber officials hint that more increases are likely to follow.
Even makers of spandex, who are less dependent on petroleum-based chemicals and have not yet come out and announced major cost increases, may be getting into the game.
Steve McCracken, president of DuPont’s Lycra operation, said of oil prices, “Certainly it puts pressure on us. Whether we react to that pressure or not in the coming months, we’re going to have to wait and see.”
While they’re not directly linked to petroleum prices, natural-fiber costs are also expected to rise over the months ahead.
Sarah McCann, president and group manager of the Americas for The Woolmark Co. noted that the Asian recovery and a pickup of European retailing drove demand for wool up over the past 12 months.
The price of wool, at the July 2 close of its trading season, was $1.71 and the average price over the year was $1.62, up 7 percent on average from the prior year. Projections for next year vary, she said, with some observers expecting the price to remain flat while others see an increase of as much as 12 percent.
For cotton, the picture is more complex. According to J. Berrye Worsham, president and ceo of Cotton Incorporated, the expected large cotton crop will likely drive prices down over the next few months.
Then, however, an overall surge in exports for the year will likely nudge prices back up. The Cary, N.C.-based firm is projecting a 17.6 percent increase in exports for the next crop year, which begins in August.
“We’re anticipating an increase in cotton exports, and I think as we get into the second half of the crop year, we will see some upward pressure on prices,” he said.