WASHINGTON — U.S. textile executives, operating in a recovery and expansion mode for the first time in a while, are looking for ways to consolidate their gains without losing profit margin to historically high cotton prices and market share to pending trade agreements.
This story first appeared in the April 19, 2011 issue of WWD. Subscribe Today.
Textile executives attending the National Council of Textile Organizations’ annual meeting here last week were upbeat about the overall health of the industry, although they voiced concerns about several trade issues threatening to reverse some of their gains.
“Last year, would anybody have guessed that cotton prices would have tripled, polyester would have been up by more than 30 percent and importers would begin to seriously doubt China and turn back to the Western Hemisphere and that we would actually run into capacity issues for some of our products?” David Hastings, outgoing NCTO chairman, and president and chief executive officer of Mount Vernon Mills, asked in his report to the group. “All in all, I’m pleased to say the industry met the challenge of that roller coaster year. U.S. production of yarn, broadwoven apparel and knit fabric were all up double digits and overall textile shipments in 2010 were up 7.4 percent. While we are not all the way back to 2008 levels, we are clearly on our way.”
Hastings said the industry has invested in new plants and machinery in the U.S., reopened shuttered mills and made upgrades in many facilities. But cotton prices, which have jumped by as much as 160 percent over the last year, are an ongoing concern.
“We’re at a point now where cotton prices are extremely high and we are working in a six-month window where retailers will see some of the price increases,” said Anderson Warlick, president and ceo of Parkdale Mills Inc., a Gastonia, N.C.-based yarn producer. “As that happens, you’ll see the real reaction to $2 cotton.”
Warlick said retailers are giving suppliers money up front to process orders, unlike in the past, where they wanted extended terms.
“Now, you have a lot of suppliers around the world, particularly in Asia, that just can’t afford that anymore,” Warlick said. “They don’t have the working capital to get cotton in the mills unless you pay for it up front and that means a lot of credit risk in the system.”
The outlook on cotton prices this year is far from stable, according to Anthony Tancredi, president of Allenberg Cotton Co., a cotton merchant based in Memphis.
“We have seen [price] moves that used to take an entire year take place inside of 12 hours — 14 cent, 18 cent, 21 cent moves in a day,” Tancredi said. “Volatility is not going away. This will be a year that is as difficult as the one we came out of.”
Cotton was trading at about $1.40 a pound last Monday, the first day of the NCTO meeting.
On the trade front, Bill Jasper, president and ceo of Unifi Inc., a producer of multifilament polyester and nylon textured yarns, who is taking over as NCTO’s chairman, said opposition to the South Korean free trade agreement as it is currently written and which Congress could consider this year is the “big issue” for NCTO.
Jasper said the agreement is uneven in that many duties for goods being imported into the U.S. from South Korea would be eliminated immediately, whereas the same textile products going in the other direction are phased out over a long period of time.
The U.S. textile industry is banking on its rebounding export business in the Western Hemisphere to offset some of the price pressures in the system. In 2010, U.S. exports of yarn and fabrics to Central America and the Dominican Republic, all part of the Central American Free Trade Agreement, rose 12 percent to $2.49 billion. Textile exports to Mexico rose $3.5 billion.
Jasper said Unifi recently added 15 percent to its polyester texturing facility capacity in El Salvador, which now produces 20 million pounds of polyester draw textured yarn.
“If we continue to see growth in Central America and in the U.S., I anticipate adding more capacity next year in both [places],” Jasper said.
To that end, NCTO will join forces with the U.S. Association of Importers of Textiles & Apparel, as well as the federal government and other associations to promote the region with a new, multifaceted Western Hemisphere initiative, dubbed “Sourcing in the Americas,” which will be unveiled at MAGIC in Las Vegas Aug. 21.
Gail Strickler, assistant U.S. Trade Representative for textiles, and Kim Glas, deputy assistant secretary for textiles and apparel for the Commerce Department’s International Trade Administration, are spearheading the effort for the government. As part of the collaboration, the program includes a Western Hemisphere Sourcing Summit that will bring together key sourcing executives; a pavilion that will showcase regional apparel, fabric and yarn mills, and the launch of a database linking suppliers with buyers.
“We’re bringing in our Western Hemisphere partners, from CAFTA-DR, other Western Hemisphere trade preference partners, and our domestic manufacturers, to make that pitch to sourcing agents that you can source in the Western Hemisphere, that there are advantages to sourcing [there] and there is a diversity of product,” Glas said.