Posted June 8, 2016

 

By Devin Steele (DSteele@eTextileCommunications.com)

 

HILTON HEAD ISLAND, S.C. – More than 100 textile industry executives were on hand here last month for the annual Industrial Fabrics Association International’s (IFAI’s) Outlook Conference.

 

They spent two days networking and putting their finger on the pulse of the economic, legislative and business environment while gathering insights into key issues that affect their future paths.

 

The conference was co-developed by the United States Industrial Fabrics Institute (USIFI) and the Narrow Fabrics Institute (NFI), divisions of the IFAI. This leadership symposium for the specialty textile industry brought together technical textile executives and decision makers to focus on matters that affect the industry in the near and long term.

 

The USIFI is a coalition of U.S. specialty fabric manufacturers and users. USIFI monitors and advocates for member positions in both legislative and regulatory issues in international trade, and hosts an annual lobby day event in Washington, D.C.

 

During the annual meeting portion of the event, the USIFI elected Ted Anderson of BondCote Corp., Pulaski, Va., as chairman. He succeeded Bret Kelley of Trivantage LLC, Glen Raven, N.C., whose term ended.

 

In addition, Jim Egan of Graniteville Specialty Fabrics, Graniteville, S.C., was elected vice chairman for a three-year term and Jane Johnson of Unifi, Inc. was elected director.

 

Kelley opened the meeting with a moment of silence for Jean Lineberger, formerly of Brawer Technical Yarns and an active IFAI/USIFI member, who died shortly after last year’s Outlook Conference; and the recently deceased father of Ron Houle, immediate past president of the USIFI and chairman of the Berry Amendment Textile Coalition (BATC).

 

Economic forecast

 

Tim Quinlan, senior economist with Wells Fargo, kicked off the conference with an in-depth look at the economy. He said he foresees continued moderate growth, led by the domestic consumer and housing, and added that the below-trend growth in the GDP will continue.

 

Though trade has been a drag over the last two years and into this year, domestic growth has held up relatively well, Quinlan said. “The problem is we don’t have a significant boost from trade,” he said.

 

He added that the probability of recession (based on the Probit Model) has ticked up, but his group sees no recession in its outlook.

 

“Our model has accurately predicted the last few recessions,” Quinlan said. “The line is curving up a little, which could be a warning. We’re 86 months into the recovery, so we’re kind of past time for a recession. But, right now, we don’t see it.”

 

He also noted that inflation is rising, but he isn’t sure if the pace is slow enough to delay a Fed move. Regarding interest rates, he said that short rates are rising but flat, and long rates as capital flows favor the U.S.

 

On the international front, Quinlan pointed out that growth in China has stabilized, but his group does not expect it to return to the double-digit growth rates seen in the past.

 

Oil and natural gas impact on synthetic fibers

 

Alasdair Carmichael of PCI Wood Mackenzie presented an overview of the impact of oil and natural gas on synthetic fibers. He noted that daily West Texas Intermediate (WTI) oil prices had increased 23 percent (to $47.4 per barrel) from April 1 to May 16, reaching its highest price since November 2015.

 

“We’re unlikely to see significant price appreciation until market sentiment finds a positive price catalyst,“ he said. “Nobody is forecasting $100 oil – not even $90. It should give global economists quite a bit of relief.”

 

In his slides, he noted that crude markets are poised for a rebound and gas markets will continue to range between $3-$4 per MMBTU in North America for the next several years. For U.S. fibers, this means that when there is no supply demand constraints in petrochemicals, then oil is going to be the leading price driver – but not on a one-for-one basis.

 

For polyester, Carmichael reported that a new scenario is developing in the U.S., partly the result of lower-cost petrochemicals, which is moving the U.S. into a potential overcapacity, and plants rely on exports to stay operational – just like China. He added that because of cheap U.S. natural gas, the U.S. becomes the world’s low-cost producer of polyester monoethylene glycol (MEG) and from 2018 to 2020 will have 3 million tons of new capacity projects. And the U.S. demand forecast will increase 500,000 tons, he added.

 

“The U.S. has to become a major exporter, and therefore has to price below Asian levels to compete,” he said.

 

However, the scenario that helps MEG become more competitive hurts propylene, he said. MEG comes from ethane production and natural gas is the most cost efficient route in the U.S., whereas propylene is generally a byproduct of naphtha (oil). Due to low-cost natural gas in the U.S., there is a major expansion into natural gas cracking and this is producing much less propylene, Carmichael noted, which is leading to investments in propylene.

 

In conclusion, he said that polyester continues to dominate the fiber landscape, and that industrial textile growth rates are higher than apparel and household textiles.

 

PVC supply chain

 

John Macaluso, industry manager ­­of Building and Construction, Teknor Apex Co., reviewed the flexible PVC supply chain, cost drivers and trends. He noted that PVC (thermoplastic polymer) is the third most widely used plastic and can be compounded with various additives to provide a desired performance. It also is recyclable, he added.

 

He showed a diagram of how PVC is made and pointed out that oil remains the overall cost driver. Natural gas is expected to stay comparable to 2015, on average, he added. Other cost drivers include the export market, polymer demand (ethylene) and North America supply and demand.

 

Macaluso went on to explain the four main groups of plasticizer chemistry and their price drivers.

 

Related to trends in the PVC industry, there is higher scrutiny of PVC plasticizers and an evolving regulatory environment for materials, he said. Plasticizers also are used in the medical, building and construction, consumer and industrial and automotive markets, and usage in those areas continues to be monitored, he added.

 

In addition, he gave a technical look into stabilizers, lubricants, fillers and other additives.

 

Trade and legislative update

 

Joshua Teitelbaum, deputy assistant secretary of Commerce for Textiles, Consumer Goods and Materials in the U.S. Dept. of Commerce, presented a trade and legislative update, most notably the Trans-Pacific Partnership.

 

“It is the president’s goal to complete the deal this year,” he said. “If we don’t pass TPP, it won’t be good because other countries are negotiating FTAs now. If we step back from that, we will not be the ones setting the rules. They will not include the high standards that reflect the way we do business.”

 

Key features of the recently negotiated, 12-country trade pact include strong language covering labor rights, environmental protection and a “level playing field,” he said. The TPP includes strong rules protecting intellectual property rights and promoting e-commerce, and disciplines are placed on state-owned enterprises, he noted.

 

The textile chapter of the agreement provides new commercial opportunities for U.S. brands and retailers and takes into account the interests of U.S. producers, he added. Strong customs enforcement, rules of origin and market access are key elements related to the textile segment, he said.

 

In the customs text, strong enforcement and cooperation provisions to prevent fraud are included, as well as a special safeguard mechanism, if needed, Teitelbaum said. Rules of origin include a yarn-forward provision that promotes TPP region supply chains and keeps the benefits of the TPP in the U.S. and the TPP region, he noted. Additionally, the short supply list permits some flexibility but limited “cut-and-sew” exceptions, he said.

 

Regarding market access, all textile and apparel products will see duty cuts on Day 1, with some duties eliminated completely then, he said. The remaining duties on sensitive textile and apparel products will be eliminated over a phase-out period of 10 or 12 years, he pointed out.

 

All told, Teitelbaum said, the deal opens export opportunities that would not otherwise be available. For example, he reported that the U.S. exported more than $135 million of specialty and industrial fabrics in 2015 – during a time when duties were up to 14.2 percent in Japan, up to 20 percent in Malaysia and up to 12 percent in Vietnam. “The TPP eliminates nearly all of these duties on Day 1,” he said.

 

He also touched on the Trans-Atlantic Trade Investment Partnership, which is being negotiated, pointing out that the U.S. and the E.U. are each other’s largest economic partners, with $2.6 billion in goods and services exchanged each day. More than 13 million jobs are tied to this agreement, he added.

 

Military procurement

 

Dr. Maureen MacGillivray, professor of Apparel Merchandising and Design at Central Michigan University, provided an update on Military Uniform System Technology (MUST). The university and other organizations are taking part in this Department of Defense (DoD) initiative aimed at improving the R&D and procurement process of military products through all of the supply chain segments.

 

MUST focuses on improving collaboration between military and commercial manufacturers; and developing an integrated knowledge base to improve the design, fielding and sustainment of individual military equipment item.

 

Collaboration between commercial manufacturers/the industrial base, military service branches and the Defense Logistics Agency (DLA) is crucial to ensure that all segments have the most recent valid data on hand to make the best operational and financial decisions to support warfighters, MacGillivray said.

 

She went on to explain the program, the process for involvement and the role of each entity.

 

Berry Amendment update

 

Lloyd Wood of the Lloyd Wood Group and the National Council of Textile Organizations (NCTO) filled in for Houle to present an update on the Berry Amendment Textile Coalition (BATC). Houle is the de facto chair of the BATC and Wood is its de facto executive director.

 

The BATC, an informal organization, aims to protect and grow the Berry Amendment and includes four industry trade associations: the USIFI, the NFI, the NCTO and the American Fiber Manufacturers Association (AFMA). The Berry Amendment requires that DoD funds be used to buy items that are only wholly of U.S. origin – 100 percent American-made products.

 

Wood reviewed two recent victories for the coalition in keeping Berry strong. The FY 2016 National Defense Authorization Act included House language last year to weaken the Berry and Kissell Amendments, which would have raised the threshold to trigger them from $150,000 to $500,000. But through the work of the BATC and others, that language was struck, he said. If the language had become law, nearly one dollar in every five spent by DoD on textiles would have fallen outside Berry.

 

BATC mobilized to support an amendment offered by Rep. Jim McGovern (D-Mass.) on the House floor to carve out Berry. BATC then successfully worked to have the increase to the $150,000 threshold removed in the House-Senate conference.

 

Then the initial House mark of the FY 2017 bill saw a recurrence of the threshold increase problem, Wood said. But the BATC was able to get the House Armed Services Committee (HASC) to adopt an amendment offered by Rep. Walter Jones (R-N.C.) at markup to strike the threshold increase, he added.

 

Wood later provided further details about the recently awarded Revolutionary Fibers & Textiles Manufacturing Innovation Institute (RFT-MII), a collaborative effort between government and the private sector to accelerate the development of the next generation of highly functional textiles from both a commercial and military perspective.

 

He also divulged information about a new study, initiated by the Bureau of Industry and Security (BIS), to gather information about the “health, competitiveness and contribution of the U.S. textile, apparel and footwear industry to the U.S.” He noted that the BIS has already contacted the IFAI, and members have an opportunity to paint a positive picture of the industry by participating in the survey. A lot has changed in the industry since a similar study was done, in 2003, Wood said.

 

“If the BIS reaches out to your company, please participate,” he said. “It’s very important. Certainly, we’re in an era of growth or at least stability. You guys are turning over your product lines. You’re looking for the next paradigm-shifting items that are going to transform the marketplace. Let the BIS know this.”

 

Wood also discussed T-TIP, specifically related to EURATEX’s insistence that preferential treatment be given to the Berry Amendment in negotiations. “The U.S. is adamant about keeping Berry sacrosanct,” he said.

 

Oil and gas economics

 

Aubrey Hilliard of Texican presented “MacroEconomic Trends – InSourcing, Energy Costs.” This detailed look at oil and gas economics provided insights into natural gas, crude and shale from a national and international perspective.
 

Leadership lessons

 

Major General John Borling (USAF, ret.) gave two presentations to Outlook attendees. His after-dinner speech covered his military service and particularly his six-and-a-half years as a prisoner of war in Hanoi during the Vietnam War. A fighter pilot, he was shot down by ground fire and, seriously injured, was captured.

 

During the second business session, Gen. Borling discussed “The Eight Virtues of Leadership.” While covering that topic, he regaled the audience for more than an hour with captivating stories of lessons learned and wisdom gained.