Textiles quotas: Importers ponder pricing

Michele SanFilippo, July 12, 2004

New York — The import community’s concerns last winter that quota might run short by mid-summer on sheets and towels has been alleviated, although raw material costs and pricing pressures continue to make an impact.

As of the end of June, most of the major categories for towels and sheets from China, India, Turkey and Pakistan were approximately at or about 50 percent filled for the 2004 quota year. According to Rick Darling, president of Li & Fung USA, that is pretty normal for this time, which indicates no panic or advancing of deliveries in anticipation of problems later.

Darling said prices are either stable or slightly down at the moment. “The issue is the China impact of potentially lower prices going forward in a quota-free environment versus the rise in raw materials,” he said. “For the most part, suppliers have not been able to pass all cost increases on to importers or retailers, which we think will continue. The main issue has been to have a diverse sourcing platform, balanced among supplier and countries, in order to remain flexible.”

Jeff Hollander, president and chief operating officer of Hollander Home Fashions, feels pricing in general is going up because raw material costs are increasing. He added that container costs and polyester fiber have each gone up tremendously and keep increasing daily, while corrugated carton prices have grown 20 percent this year. Suppliers say container costs have risen between $220 and $500 per 40-foot container, but every shipper/importer is able to negotiate discounts based on buying power and relationships. “We all just have to be flexible, buy forward and make sure we have this year covered,” Hollander said.

According to WestPoint Stevens’ Bill Walker, managing director and president of Asian operations at the company’s newly opened Shanghai office, quota pricing may rise for later shipments this year. Currently he said it varies from $3 to $6 per sheet set and 50 cents to possibly $1-plus per towel piece for shipments in September.

“Due to quota only, the main impact will be (on) towels,” said Walker. “There is no major impact forecast in cotton, but the volatile oil pricing continues to impact polyester.” He added that, in general, sheets may see a small increase in price structure for back-to-school and holiday goods while towels see a greater increase.

Walker continued, “The bigger issue may be availability of goods in the fourth quarter from quota-restricted countries. Each year has seen embargoes in October/November in most categories. Without the carry over in 2004, this is expected to occur earlier in some categories, particularly in towels. Importers that have not received goods on or before October 1 could face shortages until February/March 2005.”

However, according to Salo Grosfeld, president of J.R. United in Miami, the industry should see a 10 percent decrease in prices on average when the quotas come off. “Next year capacity will be an issue,” said Grosfeld, “because all the new capacity they are preparing will not be ready.” He added that the price of cotton affects pricing more than anything and this is going down, which should balance any price increase in quota cost from some countries.

Frank Foley, president and CEO of CHF Industries, said he has not heard of any significant quota utilization issues in any category but that there are some new retail programs being finalized over the next 30 days that might chew up significant quantities. In his opinion, pricing has been relatively consistent. “There is a lot of talk, but I am not hearing that there is a lot of action at any level to alleviate supply issues,” said Foley.

Eric Vergucht, an independent agent for Dohler in the United States, said that in Brazil, “All mills are fighting to increase prices, and I think most of them will accomplish this to some extent. There are always mills that want to get their hands on more quota. Maybe in 2005 we won’t have this problem anymore.”

Meanwhile in India, where sheets are part of the Group II category, which includes garments, man-made fabrics, yarn, etc., the overall utilization through May 2004 is 46 percent or roughly 9 percent per month, said Pradeep Mukherjee, vice president of exports at Bombay Dyeing.

“On an annualized basis, this means that quotas may dry up around the end of October/mid November,” explained Mukherjee. In May, he said premiums had fallen to around $2 per sheet set; they are now expected to rise to around $3. “We anticipate problems at year-end as there seems to be no scope for a pull-forward from 2005,” said Mukherjee. “If we can get some leeway, shipping will be smooth until year-end. Otherwise, exporters who have run out of quota will have to hold goods until mid or end of December and ship out in January 2005.”

Rajesh Mandawewala, executive director of Welspun, said prices in India went up from October 2003 to March 2004. He said the increase ranged from 3 to 15 percent, depending on the nature of the business, but prices have stabilized. “We expect prices to remain at the same levels they are currently,” added Mandawewala. “For seasonal goods, the retails are likely to remain where they were last year, but the wholesale prices may move up marginally.”

In addition, he said that reliable capacities for towels and sheets are fully blocked up to the end of 2004. Current quota premiums out of India are approximately 5 cents per towel unit and approximately $1.25 to $2 per king size sheet set, but they continue to fluctuate.

Prices have remained constant per P.K. Markanday, joint managing director of Trident/Abhishek Industries in India. “The prices are actually expected to come down for 2005 on account of anticipation of a large cotton crop in the next year, which will push all textile raw material prices down. Consequently, the prices of finished goods may also come down,” he explained. He doesn’t foresee any significant change in the price structure of back to school or holiday goods in the near future.

“Replenishment levels are expected to be high this year in apprehension of disruption at the time of quota change over,” said Markanday. “The outlook for economies in general is good, which should push the replenishment levels up.”

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