Foreign Investment Boosts U.S. Spinning Industry
August 22, 2013 The U.S. mill industry, which peaked more than 15 years ago, has seen some price reduction and stability in the last few years. But watchers say the economic playing field still needs to be leveled and properly tended before it can be called a true comeback.
After peaking at 11 million bales per year in 1997, the U.S. mill industry fell to its current production of about 3.4 million bales annually, said Werner Bieri, president and chief executive of Jefferson, Georgia-based Buhler Quality Yarns Corp.
“The large weavers in home textiles could no longer compete with the imports, mainly from Asia, and U.S. mills closed in the early 2000s, one after another,” Bieri said. “With China entering the World Trade Organization (WTO) and the disappearance of the multi-fiber agreement, Asia took more and more market share in apparel, a further blow to the textile industry.”
Mike Hubbard, vice president of the Gastonia, North Carolina-based National Council of Textile Organizations, says reasons for the nosedive include a currency crisis in Asia combined with rising U.S. prices. He agrees that China’s entrance into the WTO and the disappearance of its textile and apparel agreements in 2005 hurt the U.S. mill industry. But American spinners were also savvy at the same time.
“The industry took big hits in the early part of the decade,” Hubbard said. “However, a lot of investment was going on – perhaps a billion dollars.” He said major investments were made in technology, making the U.S. mill industry one that focused on capital investment rather than labor.
Globally, from 2001 to 2009, there were major concerns that there would not be enough cotton production to meet demand, and as a result, prices began to rise. The trend continued from 2009 to 2011, as prices shot up from 60 cents per pound to more than $2 per pound in 2011, making it an era of demand-destruction, Hubbard said. The U.S. effort to blend fibers stemmed the price spike, and today the price of cotton has leveled off at a more moderate 80-90 cents per pound.
“There have been several developments recently that are changing the outlook for U.S. mills,” Hubbard said. “First, investment paid off – investment in modern spinning techniques, in particular. In addition, electricity costs were low, which made it possible for the United States to compete better in the global market. When fiber is available and energy costs are low, it’s a good dynamic.”
China, which had become a global force along with other Asian markets including India, began to turn to the United States for fiber to meet demand. “It was cheaper to buy U.S. cotton yarn than it was to buy their domestic yarn,” Hubbard added. “Costs are rising in China, and a lot of importers of its yarn are getting burned.”
The Comeback Proposition
Sources vary in their assessment on whether this is a true comeback for the U.S. mill industry, but agree on one thing: More needs to be done, and there are logistics to sort out ahead in bilateral trade agreements – particularly the burgeoning Trans-Pacific Partnership (TPP).
Recently, there has been some investment on U.S. soil, Hubbard said:
• Mexico’s Zagis opened a 130,000-square-foot facility in Louisiana with advanced cotton-spinning technology. The mill represents the first major U.S. business entity operated by the ZAGA Group, and Zagis needed a location that met its supply and shipping needs. “Louisiana, for a long time, has had all of this amazing potential. If you look at where it sits, where the highways run, and where the Gulf of Mexico is, it is tough to beat. It is different from the rest of the country,” said Dan Feibus, president and chief executive of Zagis.
• Two firms from India – Mumbai-based Alok and Jaipur-based Sarla Tex – are building in the United States.
• Canada’s Gildan is investing in a cotton ring spinning operation in the North Carolina.
• Domestically, DuPont constructed a large Kevlar facility in South Carolina.
This is encouraging news, Hubbard said. However, Buhler’s Bieri tempers such excitement with the wisdom of his company’s 200-year history. “While there is a lot of talk about some business coming back into the United States, in large part, the infrastructure to make a real difference is gone,” he said. “We have seen some limited investment in spinning, such as Zagis’s open-end mill in Louisiana and Gildan’s ring-spun operation in North America.
“But we certainly cannot say the U.S. mill industry is making a comeback. Rather, there is consolidation and some limited investment, but not a comeback on a large scale,” Bieri said. “As we move on, it will depend on rising labor costs in other parts of the world, as well as energy, which is a plus because it is cheap and abundant in the Unites States.”
Transportation time and costs will also help, he said. Challenges are that large vertically integrated mills – especially in home textiles in Asia – will retain an advantage because speed is not as critical to the home textile industry as it is to fashion. Price will always be an issue and affordable and skilled labor is scarce in the United States.
Hubbard agrees that while there is optimism, challenges remain. Regulations are affecting costs and the global economy is slow. In addition, the United States committed to the TPP in 2009. The TPP, a Pacific Rim trade agreement in the spirit of the North American Free Trade Agreement (NAFTA) and the Central American Free Trade Agreement (CAFTA), has a few issues that make it a different, and largely undefined, collection of nations.
One major issue with TPP is the application of further environmental rules. In addition, one partner (Vietnam) still uses a command-and-control economy. Third, once negotiated and defined, other nations are expected to join the agreement. The United States, for example, announced in early April that Japan wants to join the group.
Finally, the rules of free trade are undefined, so no one is quite sure how the TPP will differ from other agreements such as NAFTA and CAFTA.
“We really don’t know what to expect,” Hubbard said. “For example, Vietnam might stipulate that it enters business with only one of the partners. Rules must be put in place to ensure we know how this will affect the nations involved.”
Bieri points out the primary factors that will influence change. Labor costs will be a major issue, in addition to the cost and time-consuming nature of global logistics, growing middle classes, and the increasing purchasing power of consumers in China and India.
“While the gap of labor costs will close, it’s still very wide and will continue to be an advantage for emerging economies,” Bieri said. “Logistics is a matter of setting them up properly and will have a cost factor. But even if it is done well, it is not likely to be a big enough factor to drive large production back to the United States.
“The skilled labor force is another reason why we don’t see a large shift back to the United States in the coming five years,” he said. “Mid-to-longer term, the emerging buying power of the populations in emerging markets and the rise of their middle classes may be the biggest driver for a limited comeback for the U.S. mill industry.”
GET THE NEWSLETTER TODAY!
