Up And Down Start To 2012

The first month and a half of 2012 have some spinners and industry observers scratching their heads.

After a disappointing finish to 2011 — perhaps one of the most tumultuous years in recent memory — the hopes of many were buoyed by a robust start to the new year. Then, just as quickly as the uptick of business appeared, it went away.

“We saw a pretty significant surge in business at the start of the year,” said one spinner. “ I think we took that as a sign that whatever market correction occurred in the last half of 2011 was over, and that business would return to normal. We saw a pretty healthy increase in orders for about three weeks. Then, just as suddenly as it appeared, the business disappeared.”

One spinner noted: “What happened at the beginning of the year seems to have been a short-term inventory correction. Retailers, obviously, were looking to restock their shelves after the holiday buying season. We were expecting that, and we were also expecting it to be relatively short-term. We just weren’t expecting it to be as short as it was.”

Those spinners and others close to the industry who tend to take an optimistic view believe that January’s healthy sales were a preview of what the rest of the year may hold. “We think the current slack is a result of a lull caused by rapid post-holiday inventory replenishment at retail. I think what we all hope to see is that once merchandise is back on the shelves and starts moving out the door, our business will become a little more stable.”

Another spinner remains optimistic because of continued conversations with customers. “We are not getting a lot of orders right now, but we’re still getting inquiries. Our customers are talking to us, and they are asking about product. So, I am not terribly concerned at the moment. The time to really get worried is when the customers stop talking. And that hasn’t happened yet.”

Overall, many spinners continue to run full production schedules. The orders they have, however, have become smaller. “We’re running full, but not for very long on any one thing,” said one spinner. “It seems we spend as much time changing over as we do running.”

Prices Still Unstable
The price of raw cotton continues to drop. Quotations for the base quality of cotton in the seven designated markets measured by the U.S. Department of Agriculture averaged $0.8483 cents per pound for the week ended February 16. This price is more than $1.00 per pound less than the corresponding week a year ago.

“The continuing drop in cotton prices continues to play havoc with the ability of manufacturers to generate a reasonable return for the raw materials they have on hand,” said one spinner. “There is a tremendous amount of pricing pressure out there right now, and it is likely to continue until things can get back into some sort of balance.”

As a result of the high cotton prices of the previous year, blended yarns were frequently substituted in formerly 100-percent cotton finished goods. “The popularity of blends seems to have carried over,” said one spinner. As cotton prices went up, the price for blends went up as well, but not nearly to the same degree. We’re still getting a lot of inquiries for blends.”

Optimism For Solid Year Remains
Despite the up-and-down nature of the business over the past six weeks, many spinners remain optimistic that 2012 will present the opportunity for solid returns. “I think, overall, the U.S. industry is well-positioned,” said one spinner. Added an observer close to the industry: “Things are out of balance at the moment, but the fact remains that spinning capacity in the United States is pretty much in line with — or even less than — what long-term demand should be. In normal times, the industry should be running at or close to capacity.”