2011 State of the Industry

Slower and gradual growth has become the norm in the reset specialty fabrics industry.

The 2009 economy reset the size, shape and growth of the specialty fabrics industry throughout all market segments. The result: fewer significant suppliers and end product manufacturers today. The ones that are left have developed a more focused market approach and continue to do more with fewer resources.

In 2010, suppliers ramped up the market portfolios that they’d been trying to diversify over the last few years. The down economy forced many manufacturers to streamline or specialize in market segments in which they could effectively compete; successful manufacturers began to reap the fruits of their labor in 2010. Market segments such as graphics, marine, awnings and tents have achieved improved growth in sales in 2010. The dust has started to settle following 2009’s changes: slower and gradual growth has become the norm in the reset specialty fabrics industry.

World markets’ slow comeback

In 2009, the traditional growth rate of 4 percent per year for the worldwide specialty fabrics industry decreased by 1-2 percent. As global economies improved in 2010, the world market for specialty textiles also improved, reaching a growth rate of 2-3 percent.

In 2011, this is expected to grow just 2-2.5 percent, as global consumer confidence fell in late 2010 and is expected to remain constrained in 2011. Most markets across the world show consumer spending restraint. Consumers worldwide remain concerned about the soft labor market, personal finances, the tight credit market and their ability to buy; there simply hasn’t been enough positive news to spark a sustainable uptick in consumer spending.

The Asia-Pacific region is the exception, according to the Nielsen Global Consumer Confidence Index. Nine of the top 10 most business- and consumer-confident nations are from the Asia-Pacific region.

Recovery and hope in the U.S.

Since the second half of 2008, the down economy has negatively impacted all market segments in the U.S. specialty fabric industry, but slowed growth in the traditional market segments the most: awnings, fabric graphics, and tents and events suffered 15-20 percent declines in sales in 2009.

In 2010, the overall business and sales environment improved and some manufacturers—even in the traditional markets—did very well compared to 2009.

An August 2010 IFAI survey of U.S. end product manufacturers (EPMs) indicates that many industry participants feel a slow recovery is underway. The sentiment among those interviewed at IFAI Expo Americas 2010 was that the overall business environment has been slow but there has been a discernable improvement in 2010. We’re not at sales levels experienced in 2008, but we are heading in the right direction.

The huge declines in sales experienced by many markets in 2009 seem to be over. Sales in the U.S. specialty fabrics industry decreased about 6 percent in 2009, but, similar to the improved U.S. GDP estimated at 2.9 percent in 2010, sales for specialty fabrics also improved in 2010—growing about 1 percent over 2009. Sales projections for highly fabricated products in the U.S. for the period 2011–2013 are expected to see decreases of just under 1 percent per year—not bad compared to where the industry was in late 2008 and 2009.

U.S. manufacturers respond

Companies that have survived the economic turmoil over the past few years have learned to reinvent themselves to compete with importers that have the advantage of lower labor costs and greater government support. These companies have committed to become leaner in manufacturing and are constantly seeking ways to implement more effective work processes and eliminate wasteful ones. They have spent more money on training their work force and maintaining a focus on innovation through research and product development, especially in high value niche products.

Mills surviving in the U.S. specialty fabrics industry continue to invest in new plants and new material producing equipment. Their “mantra” has been that they cannot ignore the latest improvements in productivity and quality—despite operating mills at rates in the 61-62 percent range (much below the 80 percent and higher levels seen in the 1990s). The downside of this investment in capital and erosion in sales (due in part to imports) is the loss of thousands of U.S. textiles jobs—jobs that won’t be coming back.

But it’s not all bad news. The health of the U.S. specialty fabrics market will not be predicated on employment levels, but on how efficient mills and other participants in the value chain are. The effect of increased investments in technology by industry participants has improved efficiency in specialty fabrics mills—increasing production rates, driving down costs and creating higher quality products for the end customer.

Key U.S. markets

There are four key U.S. markets within the specialty fabric industry, all impacted by different forces and economic drivers.

Military. The military segment covers safety and protective products (including smart technology) for troops, firefighters and law enforcement. The U.S. military fabric market grew about 26 percent in 2009, and decreased about 24 percent in 2010. A driving force behind product developments, the military’s influence on the safety and protective market should continue into 2011 with 97,000 U.S. troops still deployed in Afghanistan. Although spending on textiles and clothing is expected to decrease 3 percent in 2011, the level of spending will remain substantial.

Expenditures for the U.S. military textile and clothing market rank third, behind the transportation market and industrial applications.

Construction. The use of geosynthetics in construction has traditionally grown in the U.S. at about 5-6 percent annually; growth was down about 4.5 percent in 2009, but growth rebounded in 2010, reaching 2 percent. Geosynthetic products, manufactured by about 50 companies for the U.S. marketplace, include geotextiles and geogrids used in erosion control, road construction and other infrastructures. Nonwovens are a fast-growing geosynthetic market segment in the U.S., particularly geogrid and geofoam applications.

In May 2010, the U.S. Environmental Protection Agency announced that it plans to regulate coal ash containment sites by requiring that all sites be fitted with geomembrane liners. IFAI’s Geosynthetics Materials Association (GMA) estimates that this work will result in $300-$350 million in revenue for the U.S. geosynthetic industry over the next 5-7 years, as the proposed regulation will apply to all new and existing sites. Also, geotextiles and geogrids will be used in access roads and levee reinforcement for these sites.

Another piece of legislation will impact the industry: a decision on the length of the extension to the federal surface transportation bill has been delayed, until possibly as late as the third quarter of 2011. Originally set to expire on Sept. 30, 2009, the funding for public road and bridge construction will remain at 2009 levels until Congress acts on the bill.

Continuing budget challenges for state and local governments, uncertainty surrounding a new, long-term federal surface transportation bill and the winding down of infrastructure investment under the stimulus law is likely to drive a 4.7 percent contraction in the U.S. highway and bridge construction market in 2011.

The real value of highway, street and bridge construction in 2011 is expected to fall to $78.5 billion, compared to 2010’s estimated $82.2 billion level, but the market outlook would change if federal, state or local governments increase investment levels, and particularly if Congress passes the federal surface transportation bill early in 2011. With early passage, the U.S. geosynthetic market should achieve a growth rate of 3-5 percent in 2011; with later passage, this market may be flat or decrease 2-4 percent.

Transportation. The largest segment affected, in terms of dollars, is transportation: the automobile and light truck market. 2009 was the single worst sales year for the U.S. automotive industry in 30 years, but starting in March 2010, this market began to show a sustained uptick in sales. The U.S. economy (GDP) expanded at an annual rate of 2.9 percent in 2010, fueling an 11.1 percent increase for 2010 versus 2009.

The Center for Automotive Research (CAR) predicts 2011 new vehicle unit sales will rise to 13 million, an increase of about 12 percent. Going forward, this should be a source for growth in the U.S. specialty fabrics industry.

Recreation. The recreation market includes products such as awnings and marine fabrics. Growth in the U.S. and Canadian awnings market was down about 16 percent in 2009, but the U.S. residential construction market, which was down 30 percent in 2009, held its own in 2010, decreasing in growth by only 0.4 percent.

The U.S. commercial awning market was down significantly in 2009 and remained so in 2010. A growth area, however, was the commercial awnings recover market, by which building owners can update rather than replace an entire awning. Overall, the U.S. awning fabric market was down about 2 percent in 2010—a big improvement over 2009.

The U.S. and Canadian marine fabric market was down by about 20 percent in 2009. OEMs stopped shipping new boats in 2009 as they focused on selling carry-over inventory, but in the second half of 2010 OEMs started producing and selling new boats. The OEM market for 2010 was down about 10 percent, while the U.S. marine fabric manufacturer market was down about 7 percent. This is expected to remain down by 2-3 percent in 2011.

Import/export balances

China still holds a commanding lead in the U.S. specialty fabric import market with a 51 percent market share. Total specialty fabric imports into the U.S. increased about 23 percent in 2010, much higher than in 2009 when it decreased 9 percent.

India, Pakistan, Mexico, Canada, South Korea and Vietnam represent the second tier of participants in the 2010 U.S. specialty fabric import market, with each holding 3.1-7.4 percent share. China and Vietnam achieved the highest positive percentage change in U.S. import market share in 2010. Mexico, with a 39 percent share, is number one in the U.S. specialty fabric export market, Canada is second at 17 percent and China holds a 5 percent share. Total U.S. specialty fabric exports increased about 29 percent in 2010—much better than in 2009 when it decreased 16 percent.

Asia’s influence

Key drivers for future growth in the worldwide specialty fabrics market are expected to come from Asia, especially China and India, whose specialty fabrics markets both grew at an annual rate of 10 percent in 2010. Growth in Asia’s specialty fabrics market was about 7 percent, well ahead of the 1 percent growth experienced in the United States.

Key markets for specialty fabrics that will drive growth in the Asian region include automotive, infrastructure (geosynthetics for road and bridge construction), medical textiles and safety and protective. IFAI estimates there are 5,000 legitimate EPMs operating in the Asia-Pacific region. It is estimated that the world market for specialty fabrics could grow to about 5-6 percent per year over the next decade.

China. Over the past 20 years, China’s consumption of specialty fabrics has grown about 10 percent per year. China, too, suffered from the global recession in 2009, yet its specialty fabric market has stabilized in 2010, due in large part to the Chinese government’s $586 billion stimulus plan launched in November 2008.

Today, the Chinese Yuan remains undervalued by as much as 40 percent, providing enormous financial support to Chinese exporters. The Chinese government has not yielded on its stance, a position that has enabled the Chinese to increase their share of U.S. specialty textiles imports in 2010. At the G20 Seoul Summit in November 2010, China’s President Hu Jintao told President Obama that China was committed to reforming the Yuan exchange rate regime, but it would be an incremental process that required a sound global economy.

India. India’s specialty fabric and nonwoven industry is fragmented and still in its infancy, with no state-of-the-art technology in place compared to global players. The textile industry is also undergoing a major reorientation from apparel to specialty fabric applications. (Specialty fabrics now accounts for more than half of the total textile production in India.) The focus of the government is on upgrading infrastructure (geosynthetics) and increasing the use of automotive textiles (nonwovens). Other product areas leading growth for India are safety and protective (defense), medical textiles, agriculture (nets, shading, mulch) and filtration fabrics.

Seeing opportunity

In 2011, specialty fabrics businesses will continue to wrestle with obstacles they faced in 2010, but while the U.S. industry is expected to decline by less than 1 percent in 2011, EPMs that focus on producing and selling high value products and services may achieve solid growth. Examples include safety and protection, geosynthetics, smart fabrics, medical textiles, wide-format digital textile printing and eco-friendly materials and applications.

Successful players have seen opportunities in the marketplace and have taken advantage of them, believing that an economic downturn is no reason to stop spending on innovation. They continue to selectively invest in new product development and ramp up investments for the sustained recovery that will come in the next handful of years.

The State of the Industry is an annual look at the status of the U.S. specialty fabrics industry based on IFAI research. Purchase the full report from the IFAI bookstore.
Contact Jeff Rasmussen, IFAI market research manager, at +1 651 225 6967 or jcrasmussen@ifai.com for more information.

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