Trade Commentary (21 March 2007) The CAFTA agreement has taken a further step forward with the Dominican Republic joining the other four signatories, El Salvador, Nicaragua, Guatemala and Honduras, in implementing the agreement. The one remaining country to sign is Costa Rica and internal opposition there is delaying its involvement. Apparel exports into the USA from the CAFTA region were disappointing in 2006, and exports from the Dominican Republic were down 16% at 11 months. It is hoped that with implementation of the agreement more companies will feel comfortable increasing their CAFTA sourcing. The Dominican Republic is the largest of the CAFTA markets for US exports and in turn the US is the destination for 85% of exports from the Dominican Republic. The potential US - Korean Free Trade Agreement is close to a decision point although both sides have significant reservations over key issues. The concern is that if no agreement is concluded before the end of the month then the US President's "Fast Track" authority to conclude agreements without debate in Congress is likely to expire before any bill could be brought before Congress for a vote. Some US congressmen from textile constituencies are requesting strict controls and powers of investigation to deter the transhipment of finished goods; as well as safeguard provisions that can be implemented in case of a surge in imports of finished goods; and also the longest possible phase-out of duties on textile products. The big fear in the fibres industry is that at yarn level the USA will be overrun with Korean fibre and yarn due to the removal of import duties. Much of the Korean fibres industry is currently on a knife edge due to the loss of markets to Chinese competition (both in selling into China and also in markets where Chinese exports have gained substantial share). Currently Korea is the largest foreign supplier to the USA of polyester FDY, polyester industrial, polyester staple and polyester tyre fabric. With the removal of duties of between 4.4 and 8.8%, these volumes could increase, to the further injury of the domestic fibre producers.
	Nylon Fibres - Asia Far East (21 March 2007) Although caprolactam and polymer prices in the region are largely unchanged, with some increases but also some quotations at February levels, they have increased significantly over the last year, by more than 15%. And over the same period nylon textile filament prices have hardly moved: not at all in the region at large; while in China they have declined by nearly 10% in the commodity sector of 70 denier type 6 for weaving. The nylon textile filament industry in Asia has adjusted to a much narrower margin, and production among China's neighbours is being steadily squeezed. The leading investor in nylon 6 capacity in Taiwan for example concentrates nowadays on expanding its polymer capacity only and has no intention of increasing its volumes in textile filament. Within mainland China there is further investment, but the more discerning producers are trying to find alternative products. In some cases they have even switched from type 6 to type 66, but this switch has been carried out usually within the 40-70 denier range and does not always carry with it any sense of the specialisation which has been very much part of the type 66 position in West Europe for more than 40 years.
	Floorcoverings in China (26 April 2006 - Appendix) A recent floorcoverings exhibition in China demonstrated the potential impact of China on global floorcoverings markets, although how this will turn out remains unclear.  At the exhibition the heavy predominance of wood and bamboo reasserted the role of these materials as floorcovering, at least in Asia. What is clear however is that China's profile in textile floorcoverings continues to rise, with Chinese market leaders now beginning to emerge. Shanhua is the largest Chinese weaver and is taking a higher profile internationally, with sales offices in Germany and Britain. It is seen as a potential partner by western carpet companies keen to gain access to the Chinese market with speciality products but also wishing to consider sourcing some manufacturing from China in the more labour-intensive categories of carpet. From a low base, Chinese carpet manufacturing is accelerating. The high labour-content sector has attracted particular attention in China, with Europe and the USA considered susceptible to Chinese competition with regard to carpet weaving. In 2005, China imported 18 Axminster looms and a further three machines have been ordered so far in 2006. The output seems targeted not just at Europe and America but also at SE Asia where this carpet type is popular. Chinese weavers seem to have full order books and a manufacturing growth rate of 30 - 40% per year is anticipated. Tufting is also enjoying very high growth rates but current Chinese capacity possibly exceeds demand and carpet prices in this sector are under pressure.  Undoubtedly, the main spur to investment is local Chinese demand, with commercial applications showing growth rates of around 80 - 100% per year. Carpet yarn supply in China is less developed than almost any other sector of the textile economy. The exhibition saw Honeywell, Hangzhou Fuxing (acting with Dutch and Belgian yarn suppliers) and Solutia all active. Invista was not represented on this occasion. Chinese nylon staple suppliers such as Changshu Special Fibres, Yuhang and Minte are not yet fully engaged in the carpet business and it might require a further shift of carpet manufacturing into China before they make this market a priority. As in many other sectors and regions, polyester is showing rapid growth into carpets, at the expense of other fibre types. Jambros (a major Chinese rug operation) confirms that around 60% of its fibre use is now polyester (all recycled), displacing acrylic in recent years.  Honeywell retains its capacity in Shanghai and in consequence remains the key nylon BCF supplier in China, with competitors operating at a smaller, more fragment level. The Honeywell strategy appears to be to switch polymer supply to local sources and to develop its yarn range; especially into solution-dyed products. Solutia is clearly having success selling some speciality nylon staple into the Chinese carpet business; at, we estimate, around 2,000 tons in 2005. One cannot assume that the global carpet sector will remain free of Chinese competition. Although the focus is on the rapid growth of the domestic market in China, there are undoubtedly certain sectors where China can make an international impact.
	Nylon BCF (26 April 2006) The nylon BCF business is running at lower levels than 12 months ago, partly due to a slackening of the new home market (for March new home starts were down 7.8% over February) and also due to increased competition from polyester. The contract portion of the business is however holding up quite well. Polypropylene shipments of BCF were down, by approximately 6%, and for nylon down 3%.
	Formaldehyde (22 February 2006) The EU is considering the possible reclassification of formaldehyde as a category 1 carcinogen. Formaldehyde is used in textile processing, including the conversion of tyrecord fabric and the single-end cord used in mechanical rubber goods (MRG). Further comment will appear in the forthcoming Q1 issue of our new 'Technical Fibres Report'.