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Sailcloths are components of ships which are produced at a Naval Engineer, and used by a Shipyard to build ships, along with Ship's Planks. There are 3 tiers of sailcloths.

Level 1 : Requires Coin and Wool

Level 2 (Reinforced Sailcloth; @1000 merchants): Requires Coin, Wool and Hemp

Level 3 (@1000 imperials): Requires Coin, Wool, Hemp and Animal Hides

You can upgrade sailcloths to higher tiers, but you cannot downgrade them to lower tiers. Also, shipbuilding requires planks and sailcloths of the same tier.