"As retail apparel prices
have fallen, yarn prices
have become more responsive
to cotton prices, decreasing
mills' margins." |
The increasing penetration of foreign spinners in the domestic yarn market also appears to have contributed to the competitive price environment. In yarn import volumes over the last two decades, two periods are clearly discernible: 1984–1995, when the volume of imported cotton carded and combed yarns was relatively flat, and 1996–2002, when imports tripled from less than 360 million to over 1.07 billion square-meter equivalents (SME). Beginning in 1996, the surge in cotton yarn imports coincided with the period when the prices of domestically produced yarn became highly correlated with changes in raw cotton prices. Comparing the correlations for open-end carded, ring-spun carded, and ring-spun combed yarns in the period of relatively flat imports with those in the period of rising imports (1996–2002), it again is apparent that yarn prices have become much more responsive to changes in raw cotton prices. As imported yarns have garnered increased market share in the United States, competition between yarn mills has minimized margins and prompted increased attention to raw material costs, reflected in the stronger correlations between raw cotton costs and prices for each yarn type since 1996. |
| "Yarn imports' increasing penetration into the domestic market has contributed ot the competitive pricing environment." |
Cotton Incorporated’s study showed significant correlations between cotton and yarn prices, and further demonstrated that prices for open-end and ring-spun yarn have become more responsive to raw cotton prices as apparel prices have declined and imports have risen. Over the period 1984–2002, mill-delivered cotton prices either rose or fell at least 30% between market inflection points ten times (four increases and six decreases).
|
For example, for Ne 18s open-end carded cotton yarns (a common type and count of yarn produced domestically), every 1% decline in cotton prices resulted in a decline of 0.09% to 0.83% in yarn prices. The average responsiveness (elasticity) to cotton prices over the six bear markets was 0.43. Conversely, every 1% rise in cotton prices resulted in an increase of 0.14% to 0.29% in yarn prices; the average elasticity during the four bull markets was only 0.21. In general, the prices of open-end and ring-spun carded and combed yarns tended to decline more when cotton prices fell than they rose when cotton prices climbed. Thus, yarn prices are more responsive to cotton price declines than increases. In other words, manufacturers have been unable to raise yarn prices to their customers as much during appreciating cotton markets as they must lower yarn prices during down markets.
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