Mr. Cramer charges that anyone who can afford brand name diapers will choose brand name diapers over generics and K-C's leverage to oil makes it poised for a major comeback if oil prices continue to decline. While many analysts are negative on Kimberly-Clark because they expect that high oil prices will hurt margins, Mr. Cramer believes that estimates at K-C, which has $300-$350 million for cost inflation built into its 2006 numbers, are too low and raw material costs will come down.
For a long time, nonwovens producers have been challenged with passing along higher raw material prices to diaper manufacturers and have implemented a number of cost saving strategies to offset these costs. So, what will it mean for these same producers if oil does continue to fall? We will see lean, mean and efficient operations no longer trapped between high raw material prices and cost pressures in the diaper industry. We will see companies that are able to increase their profits. It could mean that good times are finally here for nonwovens.
Speaking of good times, after five or so bleak years, it seems things are finally starting to turn around for the airlaid market. As associate editor Ellen Wuagneux reports on page 36, major airlaid manufacturers are moving more materials and developing new applications to help get themselves beyond the challenges that have plagued them since the big capacity boom of 2001. One industry observer is even bullish enough to predict that all three major airlaid producers would be profitable within one year. Of course, new capacity is set to come onstream around the world, and the impact of these new lines cannot yet be predicted.