Amid uncertainty and volatility — geopolitical, economic, retail and sourcing — apparel and textile manufacturers found stability in the fiber market in 2015.
For a change, raw material costs were not what caused brands and retailers problems, as prices for natural fibers such as cotton, wool and cellulosic-based materials and synthetics such as polyester and nylon saw minimal price fluctuations during the year.
Most expect that environment to continue in 2016, although some disturbances are possible. A report from McKinsey & Co., “Sewing Up Lower Costs From Falling Commodity Prices,” said apparel and footwear companies should be helped by tumbling commodity prices, especially for oil and cotton.
Cotton spot prices, after a few years of extreme ups and downs, ended last year at about 60.5 cents a pound and finished this year at 62.01 cents a pound, according to the U.S. Department of Agriculture.
Further small increases could be in the works, as New York futures and the A Index moved slightly higher over the past month, while other benchmark prices were unchanged.
Cotton Incorporated noted that USDA forecasts for production and consumption have been steadily lowered since the initial set of projections was released in May.
The largest country-level reductions for harvest and consumption figures have been for China. Since May, the USDA forecast for Chinese production fell to 24.3 million bales from 27 million bales and the forecast for Chinese mill-use fell to 32.5 million bales from 36 million. The decrease allowed India to surpass China as the world’s top producer, a title China had held for three decades.
China remains the world’s largest spinner of cotton, but Chinese mill use has also suffered steep declines, Cotton Inc. said.
“Lower levels of Chinese consumption can be expected to slow the process of drawing down Chinese stocks,” Cotton Inc. said in its Monthly Market Report. “Following this month’s revisions, China is expected to import only about one fifth of the cotton it brought into the country in 2011-12 and it is predicted that Bangladesh will surpass China as the world’s biggest importer.”
This crop year, higher import volumes from Pakistan, Vietnam and Bangladesh will help offset some of the decline from China. The pullback in import demand from China, which has been the world’s dominant cotton buyer, can be expected to hold international cotton trade volumes at lower levels and maintain some downward pressure on prices, Cotton Inc. said.
Meanwhile, cotton price stability and low historical prices are helping U.S. producers.
Citing manufacturing cost reductions and lower cotton costs, combined with continuing top-line growth, Gildan Activewear Inc. last month reported earnings rose 2.9 percent to $126.4 million for the three months ended Oct. 4.
The projected sales and earnings momentum in the fourth quarter is expected to position the company for continued earnings growth in 2016 as it expects to achieve continuing volume growth and further manufacturing cost reductions, combined with lower cotton costs. The ramp-up of Gildan’s yarn-spinning facilities in the South is on plan and the company expects to achieve its three-year target of $100 million in annual cost savings by the end of 2017.
Wool prices finished the year almost flat versus a year ago — $4.06 a pound compared to $4.05.
But things could be looking up in terms of prices in 2016. The final Australian wool auction sales for the calendar year were held this month under a less-than-expected volume of around 42,000 bales, according to Australian Wool Innovation. Almost all sectors recorded price rises, with the standout performers being the merino fleece segment. The market is being buoyed by a more upbeat tone from exporters, who reported good interest from China, India and Europe, AWI said.
In synthetic fibers such as polyester and nylon, prices have been helped by the sharp drop in the price of oil, a key ingredient in the chemical makeup of these fibers. Oil prices stood at $36.81 on Tuesday for sweet light crude compared to $54.73 a barrel a year ago. The U.S. Bureau of Labor Statistics Synthetic Producer Price Index stood at 119.7 this month from 124.1 a year earlier.
The lower fiber prices offer stability and competitiveness along the supply chain, but limit pricing power and profit margins, experts contend.
Lifted by its premium value-added polyester and nylon products, including the flagship Repreve recycled yarn, Unfi Inc. reported a 13 percent increase in net income in the first quarter ended Sept. 27 to $8 million from $7.1 million for the prior-year first quarter.
However, net sales were down 8 percent to $162.2 million, primarily due to the significant devaluation of the Brazilian real and pricing declines due to lower raw material costs. Unifi increased operating income by more than $2 million over the prior-year comparable quarter thanks to the strong performance of its regional texturing business and premier value-added products, as well as margin improvement for its China subsidiary. The company had an increase in volume for its polyester segment.
Based on the anticipated growth for synthetic apparel in the North and Central American regions, Unifi is exploring adding additional polyester texturing capacity over the next 18 months, said Roger Berrier, president and chief operating officer.
Berrier said the eight draw texturing machines that Unifi has added in the U.S. and El Salvador factories to support the growing demand for synthetic yarns in the region are already running at capacity. He said the increases in domestic polyester volumes were offset by declines in volume at the lower end, in its commodity business.
“Textile utilization rates in Asia remain very low, and the gap in polymer pricing between the U.S. and Asia remained at the high end of the range over the past several years, and Asian yarn producers have further lowered the price of imported yarn at the low end of the market,” Berrier said. “The resulting lower price of yarn imported into our markets puts a lot of pressure on our products that are at the low end of the market.”
Lenzing Inc. said positive currency effects, higher fiber selling prices and a good cost position in the light of ongoing strong demand for its products will enable a significant earnings improvement for 2015.
In the first three-quarters of 2015, Lenzing saw consolidated revenue rise 7.4 percent to 1.46 billion euros, or $1.56 billion. Earnings before interest, taxes, depreciation and amortization improved 31.7 percent to 210.6 million euro, or $226.7 million.
Lenzing said it expects demand for its man-made cellulose fibers Tencel, modal and viscose to increase 5 to 6 percent annually through 2020, driven by world population growth and rising prosperity in emerging markets. The company said forecasts call for a 50 percent rise in per capita textile consumption in emerging markets from 2010 to 2020.
Even with the general stability in fiber prices, McKinsey & Co. warns that many firms often miss out on significant costs savings from lower commodity prices “by failing to truly understand their value chains.”
“Some companies don’t have a structured process in place to ask for supplier cost reductions when commodity prices fall; others don’t know what cost reduction to ask for when they do,” McKinsey said. “Of those that do ask, many receive small reductions of 1 to 2 percent from some suppliers, while others receive no savings at all. To claw back the full savings potential offered by commodity price drops, companies need to develop a detailed picture of the end-to-end value chains of their products, and of the way input cost fluctuations percolate through that chain.”