February Industry News

Who let the dogs out!

[woof, woof, woof, woof]

The top dog is out to bite again!

Formosa Taffeta is going for another price increase in March, 2011, said the source.

For how much? Don’t know yet! I would recommend for those of you who hasn’t or plan to issue your PO better jump the queue. Otherwise, you are going to miss the boat!

As crude oil and CPL price elevated steeply, weavers in Taiwan are now expecting yarn price to increase again. So, most factories don’t want to stock up their yarn supplies. The average lead time has extent to 90 days from 60 days and greige sells out on a pre-order basis. I know it’s going to be a hell of a wait. But smart merchandisers or buyers like you should plan ahead of your production plan and reserve the yarn or greige as early as possible!

That’s not all, the largest or the only CPL supplier in Taiwan, China Petrochemical Development Corporation (1314.TWSE) has scheduled annual preventive maintenance for two of its production plants in Q1 and Q2, 2011. This means, the nylon chip supply will tighten up drastically.

Also, if you have been waiting for cotton related product price quotation, you are likely waiting in dead men’s shoes. The demand for cotton had pushed the price of cotton to a historically high. Almost all cotton factories in Taiwan stopped giving out cotton related quotations before Chinese New Year.

I have got a good news though, the “Hot Money” in Taiwan has shifted to outflow. The foreign exchange rate seems to be stabilized. Although the effect is insignificant, it can still minimize some of the price difference from TWD to USD.

Correlation

In my earlier post “Supply and Demand”, I mentioned that “the oil prices will continue to rise in 2011 and possibly reach an average of $100 a barrel this year.” Today, oil surges again in the course of Libyan violence. Brent crude reached $114.13 while WTI crude goes over $100.75 a barrel.

Currently, there is a huge gap between Brent and WTI crude price. Historical evidence proved that two crude oil benchmarks will eventually come to an intersection - whether it’s Brent crude to go down or WTI crude to go up. One way or another, oil price will eventually starts to decline as researchers are dedicating themselves to search for improved alternative energy sources. But more to the point is how long does it going to take?

Now, from July, 2010 @ $84.15 to Jan, 2011 @ $178.93, the average price of Upland cotton per pound has landed an increased of $94.78 or 112.63%.

Let’s take a look at Spot Caprolactam price. From July, 2010 @ $2,500 per ton to February, 2011 @ $3580 per ton, CPL netted an overall increase of $1080 or 70%.

The correlation between CPL and oil is apparent, but what about cotton and CPL?

A simple logic would be the cotton price comes in way too high and people start to seek for alternatives. A simultaneous increase in demand and decrease in supply, the price of synthetic will be increased. So, we are actually looking at a price module where cotton price will start to decrease at the cost of synthetic price to increase.

Nonetheless, it sucks to bring the bad news on the price front. But the fact is that the market got so used to stable or decline textile raw material prices for so many years. Now, it is imperative to understand why the price of synthetic fiber is going upwards.