Don Johnson, DuPont: Growth of US economy has driven fiber consumption to record levels.
Despite some difficulties in the manmade fiber market, the overall outlook is still very positive. Global demand for manmade fibers continues to increase year by year, innovation continues to generate the introduction of new products and new processes, and producers continue to make efficiency gains.
This was the consensus of major fiber manufacturing executives from around the world who gathered in Brussels, Belgium in mid-May to discuss the state of the manmade fiber industry at the dawn of the 21st Century. The occasion for the gathering was the 50th anniversary of the formation of CIRFS, the European-based Comité International de la Rayonne et des Fibres Synthétiques. The event attracted 160 delegates, mainly senior executives of fiber producer companies, from 27 countries.
Speakers from Europe, North America, Japan, India, Indonesia and Taiwan discussed the general economic situation, rising prices of raw materials, excess capacity, and different patterns of development in their own regions.
Domain of Polyester
Several speakers commented on the growing dominance of polyester fibers and yarns. Dr. Hartmut Last, for example, noted that manmade fibers have now surpassed natural fiber production and hold a nearly 60% share of the total fiber market.
The highest growth, said Dr. Last, managing director of Trevira GmbH, Germany, comes from polyester, which now has nearly 60% of the manmade fiber sector.
Outlining the development of the manmade fibers industry, Dr. Last said it now has an annual turnover of more than Euro 50 billion (about $47.8 billion) based on an output volume of nearly 28 million tons. This performance has been fueled by huge investments and strong R&D budgets. If the expenditures of machinery builders and chemical manufacturers are added, in total the industry currently spends more than Euro 1 billion (about $950 million) on R&D each year.
Todays world population of 6 billion is estimated to grow to nearly 10 billion by the year 2050. This translates into an estimated fiber demand of approximately 140 million tons by the middle of the century.
Various factors will inhibit significant increase in the volume of natural fibers available. Although manmade cellulosic fibers will achieve moderate growth, the main increase in volume will be provided by synthetic fibers.
Said Dr. Last: While todays forecasts suggest the shares of polyamide and acrylics will be nearly static, the volume for polyester especially will show strong growth. However, he also noted polypropylene is a fast-growing sector, mainly for technical textiles and nonwovens.
Dr. Last stressed the need for sources of regenerative and environmentally cleaner energy mentioning specifically the hydrogen fuel cell and for more efficient utilization of fossil resources.
He underlined the role played by innovation in the sustainability of the fiber industry following recent changes and the withdrawal of many first-generation fiber producers from the market. As contemporary examples, he mentioned the potential of such developments as: lyocell cellulosic fibers; renewable natural resources such as PLA (polylactic acid); synthetic spider silk; PTT (polytrimethylene terephthalate) polyester; metallocene polypropylene; advanced aramid items, PEN (polyethylene naphthalate); and the latest carbon fibers.
US Consumption at All-Time High
Speaking on the outlook for the North American manmade fiber industry, W. Donald (Don) Johnson described how the US economy has enjoyed unprecedented and sustained growth for the past seven years.
This has driven our fiber consumption to record levels, said Mr. Johnson, group vice president of Dupont Nylon and chairman of the American Fiber Manufacturers Association. Five years of the North American Free Trade Agreement has helped in achieving this result, permitting Canada, Mexico and the USA to link businesses and provide more efficient and competitive supply chains from fiber production through to retail outlets.
The performance of the US stock markets are reflected in stockholders willingness to buy big-ticket items. Conditions generally have been driving the accumulation of new wealth and the surge of new purchasing power that goes with it. Housing starts are on the increase, apparel consumption has reached new heights, and automotive purchases are strong.
US fiber consumption has now risen to 40 kg/person annually, the highest in the world.
Nevertheless, Beginning in late 1997 we felt the impact of the Asian financial crisis. Some fibers faced serious global overcapacity. Low priced imports flooded in, depressing our volumes and prices, Mr. Johnson noted.
There was a ripple effect downstream as garments from outside the region were, in turn, more competitively priced and foreign imports continued to take market share, particularly in the apparel industry."
Rising oil prices, he continued, tightened an already acute profit squeeze. The ability to pass along oil-related and other cost increases to customers became severely limited. Customers were themselves laboring under intense competition pressures.
All of this has brought into question our ability to reinvest in the fiber business, he said candidly.
Still, Mr. Johnson remains optimistic. Exciting new polymer and fiber technology developments will spur revenue growth for many producers.
He indicated how the NAFTA countries are negotiating new free trade agreements that will expand market access and permit them to capitalize on their individual strengths be they human capital, investment capital, or intellectual property and services.
All of us are gaining from the related economies of scale. Productivity is on the rise, but more important than anything else, I believe our business will be completely transformed, not a decade out, but in the years just ahead, Mr. Johnson said.
He noted how e-commerce is revolutionizing every process, every connection, every interaction, every aspect of the value chain, suggesting it will become the central challenge, spark and excitement of the immediate future.
Returning to the remarkable economic climate that has fueled fiber consumption in the USA, he said its momentum is carrying it forward into another strong year, and is being helped by Asias economic recovery. Inflation remains low and, despite [US Federal Reserve Board Chairman] Alan Greenspans threats to continue to raise them, interest rates are expected to remain below double digits, Mr. Johnson said.
However, the vast USA market is open to suppliers from the rest of the world, and domestic fiber shipments have been declining in recent years. Even if shipments within North America as a whole are factored in, including the strong growth from Mexico and Canada, there has been a small decline since 1997 when the Asian financial crisis began to take its toll.
Mr. Johnson said that over the past decade US synthetic fiber production grew by only 1.6% annually. Within the different fiber groups olefin led, with an annual growth of 5.9% making significant gains in the nonwovens and flooring sectors. Nylon and polyester output was up slightly, but acrylics and cellulosics lost ground. Cellulosic output, which now accounts for only 3% of US output of manmade fibers, declined by 6.6%. From a peak of 87% in 1997, production capacity utilization fell to 83% in 1999.
In terms of increase in consumption by country within North America, the US rise, at 2% was the lowest. Mexico leads the way with an average annual increase of 8% since NAFTA came into being. Textile mill capacity in Mexico has grown rapidly, following what he described as dramatic expansion of that countrys sewing industry. Manmade fiber accounts for 52% of Mexican mill consumption at this stage in the NAFTA build-up and is still rising.
Sharp Decline in US Apparel
Commenting on the sharp decline of the US apparel industry, Mr. Johnson said domestic production accounted for 50% of consumption in 1992: this plunged to a mere 12% by the end of 1999.
Fortunately, much of this shift in labor-intensive sewing has remained in the region, he said. Mexican product now accounts for 16% of US apparel imports, compared with only 2% before NAFTA. More than half these imports use US fiber. The Caribbean and Central American countries, which also have a trade preference with the US, account for another 24% of US apparel imports and, as with Mexico, more than half these imports contain US fiber and fabric.
Asked to comment on future prospects, the AMFA chairman said all three NAFTA countries are negotiating further trade agreements. In the US, we have recent legislation to give duty-free, quota-free benefits to both the Caribbean and Central American countries, and to the 48 nations in Sub-Sahara Africa, for apparel.
Mexico is actively negotiating free trade agreements around the world. Following the completion of accords with the EU and Israel, it is now in discussions with other countries, including Japan and Brazil. On a broader scale, the entire Western Hemisphere is working to unite in an integrated trade union to be known as the Free Trade Area of the Americas (FTAA).
Impact of WTO Deal
Looking to 2005, Mr. Johnson said that part of the WTO agreement quotas for yarn, textile, apparel and industrial products for the US will be completely phased out by then. Expect a scramble for sourcing the attractive US market when the gates are lifted. Almost certainly, China will seize significant shares from many other countries which now hold US quota rights. There will be chaos in the marketplace as supply chains are realigned, and its reasonable to expect apparel prices to continue in a deflationary mode during this period.
In conclusion, he said: We are faced with a challenging environment as we start the New Millennium global competition, raw materials cost increases, lower downstream prices, reduced market protection as quotas evaporate and duties are reduced. But there are exciting opportunities. New technology will facilitate a move from the old economy to the new economy as e-commerce and the digital revolution transform every aspect of our business. Its a vista, a challenge, an adventure that I believe will transform our industry, and we in North America look forward to its advent.
South American Markets
Jörg Albrecht, president of Polyenka Ltda and vice-president of the Brazilian Manmade Fibres Association, discussed the state of the South American man-made fibers industry against the background of the regions general economy.
With a total population of 335 million living in a dozen different countries, economic conditions can vary widely from area to area with inflation rates ranging from low to high. However, according to World Bank statistics, the region had a total GDP in 1998 of $1.474 trillion. Between the various countries, national GDP varied from Brazils $778 billion (the highest) and Argentinas $298 billion (second highest) to Guyanas $1 billion.
Last year, total production of manmade fibers in the six major countries of the region Brazil, Argentina, Chile, Ecuador, Peru and Colombia was 632,000 tons. Imports brought manmade fiber consumption in the six countries up to 753,000 tons, or 41% of total fiber usage. Fiber consumption per capita throughout the six countries was 6 kg, of which 2.5 kg consisted of manmade fiber.
Mr. Albrecht predicted strong growth in fiber production and consumption in South America over the next three years.
He listed various factors which, he suggested, will drive this increase. These factors included reduction of inflation throughout South America, higher purchasing power, privatization of industry, improved infrastructures, higher employment, fewer imports, more exports, greater confidence in new governments, local economic recovery, global economic stability and the restructuring of global markets.
In Brazil and Colombia, more rational balances will be made between currency devaluation and inflation. There will be growing consumer demand in both these countries, and in Argentina and Chile. Political measures will be taken in Chile, Brazil and Bolivia to reduce imports. Export incentives will be established in Brazil, Argentina and Ecuador. In Bolivia, a modernized customs service will become increasingly effective against smuggling.
The Brazilian industry will benefit from greater investment, regional incentives and government policies. Similar policies will also help Colombia and Chile to increase exports, reduce imports and create greater employment. Strategic alliances will be formed between textile companies.
The various trading blocks, such as the Andean and Mercosur blocs, he said in the region are attracting both existing producers and new entrants to install new plants and increase existing capacities, with state-of-the-art technology. In conclusion, he pointed to the trend towards the three Americas becoming a single free trade block within the next decade.
Said Mr. Albrecht: For this reason, South America needs to accelerate investments from now on to reduce the gap between North and South America.
Defining the European Industry
Colin Purvis, CIRFS director general, said that over the past decade the European industry has produced between 4 million and 5 million tons of manmade fibers annually (world total was 29.6 million tons last year), with output growing only slowly. The major sector, Western Europe, experienced a similar trend, with output growing marginally over the decade from 3.3 million tons to about 3.6 million tons.
Colin Purvis, CIRFS director general: Globalization will continue
increasingly leading to cooperative relationships between companies in different parts of the world.
For CIRFS purposes, Europe is divided into the following regions: the countries of Western Europe, Central Europe, South Eastern Europe, and Turkey. It does not include Russia, Ukraine, Belarus or Moldova.
Production in Central Europe (Czech Republic, Hungary, Latvia, Lithuania, Poland, Slovakia and Slovenia) fell sharply from 450,000 tons in the post-Communist period, to around 300,000 tons after stabilization. Similarly, output in South East Europe (Bosnia, Bulgaria, Croatia, Macedonia, Romania and Yugoslavia) plunged dramatically during the last decade, from 440,000 tons in 1990 to about 40,000 tons last year.
In contrast, Turkish output of manmade fibers skyrocketed from 300,000 tons in the first year of the decade to 800,000 tons in 1999.
Last years sales value for the entire European manmade fiber industry was Euro 11.5 billion (almost $11 billion). Investment last year was Euro 520 million (approximately $496 million), and Euro 300 million ($286 million) was spent on R&D. Commenting on these figures, Mr. Purvis said R&D spending on specialty and technical fibers might exceed 5% of sales.
There has been constant improvement in product quality, aesthetics and comfort characteristics of the textile fibers produced and considerable progress in the performance of industrial yarns. Innovative solutions to environmental problems have been achieved, and new polymer developments are being introduced.
Emphasis is being placed on such competitive strengths as innovation, quick-response customer service, development of customized fibers to meet precise specifications, and the establishment of long-term co-operation with customers.
Europe constitutes a barrier-free home market of 600 million people. Advantage is being taken of the high levels of technical education available in Europe, the close proximity of chemical and engineering companies, and an excellent regional infrastructure.
Disadvantages include reduction in the West Europe textile customer base, the relatively high cost of labor and services, and the size disadvantages of many fiber production plants. However, said Mr. Purvis, although the average size of a European plant is smaller than those in Asia, this can offer scope for greater flexibility.
Nevertheless, net annual exports from the European manmade fibers industry have nosedived from 540,000 tons in 1990 to less than 100,000 tons last year.
European Industry Responds
The European industry is rapidly restructuring to meet current conditions and challenges. Fiber producers demerged from chemical groups have found benefit from improved motivation and better focus to create and empower autonomously managed strategic business units, concentrate on the most profitable fibers, and to locate production on the most competitive sites. A high level of investment has facilitated continuous modernization and upgrading of equipment and process debottlenecking.
Synergies existing in an integrated Europe permit producers to merge or form joint ventures with complementary partners to better exploit market opportunities. The industrys output will contain a growing proportion of specialty, high value-added products, particularly those for industrial and
nonwovens uses, but still retain the necessary base of standard commodity products. Polyester and polypropylene fibers will continue to grow in importance.
Mr. Purvis believes the integration of the different regions of Europe will increase the strength and performance of the regions manmade fibers industry. He said that with CIRFS assistance, the industry will also support the development of international co-operation.
Globalization will continue, sometimes bring conflict between companies and regions, but increasingly lead to long-term cooperative relationships between companies in different parts of the world, Mr. Purvis said.
Folkert Blaisse, CIRFS president and Acordis CEO (right) talks to Turkish delegate, Ömer Dinckök, Aksa.
Polyester Dominates in Asia
Several speakers talked about conditions in specific sectors of Asias manmade fiber industry. The dominance of polyester over other types of manmade fibers throughout Asia was repeatedly mentioned, as was the current excess of polyester production capacity in the region.
S.P. Lohia, managing director of Indo-Rama Synthetics, discussed the efforts of Southeast Asia fiber producers to overcome the regions recent economic ills. The companys Indonesian parent group has extensive interests in and is among the biggest fiber producers in the region.
Mr. Lohia said the economic troubles of the region resulted in sharp falls in the value of different currencies throughout the area, in negative GDP growth, and a dramatic fall in private consumption. Today, the regions currencies are slowly stabilizing, GDP is gradually improving, and consumption is beginning to pick up.
Of all the countries affected, Indonesia was the worst hit by the crisis. Although the currency situation has improved and some GDP growth has been achieved, it is still difficult at a time of expensive capital to fund new investment. Consumption is expected to recover, but slowly, and economic stagnation is forecast for the short term.
Indonesias use of polyester has been considerably greater than that of cotton over the last few years, and has been steadily climbing since 1997. Now standing at a little more than 800,000 tons annually, compared with 500,000 tons of cotton, it is forecast to reach almost 900,000 tons within the next three years. However, domestic production capacity for polyester is more than 1.2 million tons while annual consumption of all fibers in Indonesia currently is around 1.5 million tons. Production capacity for viscose is 250,000 tons, but domestic demand is only about 150,000 tons and is not expected to rise much over the next few years.
Thailand was less badly affected by the crisis and, despite a 231% fall in the value of the Thai baht against the US dollar during the 1997-98 period, considerable recovery has been made. The baht now stands at 54% over its June 1997 value.
Current use of polyester, around 375,000 tons annually, again indicates a significant lead over cottons 240,000 tons. It is forecast this gap will grow bigger by 2003. Nevertheless, Thai polyester manufacturing capacity is about double domestic consumption.
Described as a marginal player in the nylon business, Thailand has the capacity to produce close to 80,000 tons of nylon filament yarn a year, but plants have been working at only 80% capacity for the last few years.
The county is a net exporter of acrylic fiber. Domestic demand is about 38,000 tons, but national production facilities with an annual capacity of 58,000 tons are working at near capacity. It is expected that growing demand will dictate full working capacity next year.
Strong fiscal policies and a broad-based economy have enabled the Malaysian economy to withstand the worst effects of Asias economic storm, and the country is now making the fastest recovery. Production capacity for polyester has been growing rather steadily from 300,000 tons in 1997 to almost 400,000 tons now. This trend is expected to continue, reaching 500,000 tons in 2003, with facilities working at about 80% of capacity.
The countrys nylon filament yarn situation is less favorable, but improving. An annual production capacity of 35,000 tons has been constant since 1997, but actual production levels although rising from 15,000 tons in 1997 to 23,000 tons currently are not expected to rise much higher over the next three years. As far as acrylic fibers are concerned, Malaysia depends on imports. Nevertheless, domestic demand is rising slowly and currently stands at about 16,000 tons annually.
Southeast Asia as a whole is a net importer of cotton and acrylic fiber, a net exporter of polyester and viscose fibers, and a marginal player in the nylon business, Mr. Lohia said. Following the global trend, there is a decline in the use of cotton.
Fast Growth in South Asia
Fiber demand is growing fastest in South Asia, said Nikhil Meswani.
The executive director of Reliance Industries Ltd., India, said South Asia (India, Sri Lanka, Pakistan and Bangladesh) already accounts for a quarter of the worlds cotton production, 9% of polyester capacity and 13% of viscose capacity. An annual increase of 8% in demand for polyester will continue to lead the growth for fibers generally, while demand for cotton and other fibers will increase by only 1.5% to 2%, he said.
Outlining the advantages of South Asia for the manmade business, Mr. Meswani pointed out that the costs of labor, marketing, energy and conversion are all less than those of Western Europe, North America and even Southeast Asia. In addition, polymer sources, fiber production facilities and markets are closer to each other.
Other advantages include steady fiber consumption growth in the region, which has 25% of the worlds population, and a strong economic outlook. The region has a large production base for both manmade and natural fibers, a competitive edge in fiber production and forms a power base of economic and skilled human resources.
South Asia is fast emerging as a dominant region in fibers, Mr. Meswani said.
On the downside, he said poor infrastructure remains a major constraint and the regulatory framework is not conducive to attracting outside investment.
East Asia Luring Outside Investors
Douglas Tong Hsu, chairman of Far Eastern Group, one of the largest fiber producers in Taiwan, gave his views on the outlook for the polyester fiber industry in East Asia, which he defined as including Taiwan, China, Hong Kong, Philippines, South Korea, Singapore, Malaysia and Thailand.
Over the last decade foreign investment in the region has increased to a level where it now controls 35% of bonds, he said. The importance of capital markets has also increased, with total lending rising from 11% to 17% over the period. Our economy today is more open, competitive, and reliant on financial markets than ever before, he said.
Industry in the region has benefited from deregulation and its strategies are now more globally oriented.
Mr. Hsu quoted several financial sources in saying that last year every area in the region, with the exception of Hong Kong and the Philippines, experienced real GDP growth rates which exceeded the international average of 3.3%. The GDP for South Korea was as high as 9.5%, Chinas was about 7.5%, and Taiwan achieved close to 6%.
Manmade fibers accounted for 56% of world fiber production in 1999: 18 million tons of polyester made up 64% of this output. East Asia contributed fully one-half of global polyester output.
Again, production capacity utilization for polyester staple fiber has varied over the last few years. Chinese utilization was 82% in 1997, is currently estimated to be the same, but is expected to rise to 99% by 2007. Comparable figures for Taiwan are: 90%, 92% and 101%. South Korean figures are: 88%, 85% and 97%.
Mr. Hsu outlined several factors that will affect the manmade fiber industry in East Asia in the near term:
- Permanent overcapacity for polyester products.
- A ten-year program in China, started in 1995, to establish a self-sufficiency rate of more 90% by 2005.
- Attempts to increase demand from the non-apparel sector by developing new applications for polyester fiber.
- Entry of Taiwan and China into the WTO; and any trade barriers presented by NAFTA and the EU.
- Growing competition for labor between the high-technology and textile sectors.
The Japanese Outlook
Hiroto Matsuo, president of Kuraray Co Ltd. and president of the Japan Chemical Fibres Association (JCFA), said that the systems and mechanisms that once supported Japans high economic growth no longer work efficiently owing to structural fatigue. Accordingly, the Japanese economy is in the throes of wrenching structural reform, but he said, the outlook is starting to improve.
Output of the Japanese textile industry in 1999 fell to approximately half its 1973 peak. Mr. Matsuo explained how an agreement, the Plaza Accord, reached in the USA in 1985 raised the value the yen against the US dollar, creating business conditions that still have a detrimental effect on the Japanese textile industry.
Although the spinning and weaving sectors have not recovered, the manmade fiber industry was able to maintain its production levels virtually unchanged until 1998, when a rapid expansion of textile imports combined with slack demand to force cuts in output. Penetration of textile imports into the Japanese market has recently increased sharply and now stands at 60%, he said.
Japan Industry Predicts Oversupply
The JCFA calculates global demand for fiber grew annually by 3.1% in the 1970s, but forecasts that over the five years from 1998 this growth rate will be only 2%.
It expects total fiber demand worldwide in 2003 will be 50 million tons, of which 26.5 million tons will be synthetic fibers. In 2003, consumption of the four major synthetic fibers polyester filament yarns, polyester staple fiber, nylon filament yarns and acrylic staple fiber will total 25.5 million tons. By that time, production capacity is expected to reach 33.7 million tons.
Based on these figures, the association estimates that with an 80% capacity utilization rate the average recorded in synthetic fiber producing countries over the past 20 years there will be a gap of 1.7 million between production and consumption.
Mr. Matsuo said this excess supply raises grave concerns. Most of the gap is expected to be formed by polyester, but there will also be an over-supply of nylon. Asian producers will have the greatest surplus. Exports seem to be the solution, but there are few regions in the world that will want the shipments.
Asia: The Worlds Fiber Producer
Nevertheless, although Japan is expected to retain its annual production of synthetic fibers at the present level of 1.3 million tons, rapidly increasing production elsewhere in Asia will reduce its share of world output from 11% in 1985 to 5% in 2003.
Production in Western Europe and the USA is also expected to stay around 6.2 million tons annually, but its share of global output will have declined from 44% to 23% over the same period. The lost percentages will be captured by Asian producers excluding Japan and by 2003 Asia will account for two-thirds of total international production.
Mr. Matsuo said he believes measures taken to secure the future of the Japanese industry should include structural reform to enhance its competitiveness, the development of new applications for synthetic fibers, and steps to ensure a level playing field under the WTO.