Being one of the largest producers of cotton in the world, Indian textile industry never felt the urge to increase its share in man-made fibre. However, with cotton prices fluctuating continuously over the past three to four years, there is an uncertainty in the market and many players are now looking to balance risk with production in man-made fibres. Industry experts feel if uncertainty in the cotton market persists globally, cellulosic fibre production is set for strong and rapid growth in the coming years. Could this be advantage India…?
[bleft]Global Share in Cellulosic Fibre
Looking ahead, global cellulosic fibre capacity is expected to rise by 13.7% in the 21 months between March 2013 and December 2014, while demand for cotton in the 2013-14 season is projected to rise by a much slower 2.1%. The rise in global cellulosic fibre production in 2012 was due almost wholly to expansion in the man-made fibre industry in China. In percentage terms, Chinese cellulosic fibre output rose by 17.3% in 2012 after growing by 19.5% in 2011.[/bleft]
The continued high price of cotton in relation to the prices of substitute fibres is projected to adversely affect the cotton demand. In China alone, cotton demand has been forecasted to fall by 0.6% as the industry continues to switch to alternative fibres because domestic cotton prices remain high relative to world cotton prices, in this scenario the man-made fibre industry in set to grow. In fact, post-2011 many global textile and made-ups producers switched to man-made fibres or started to use a greater proportion of man-made fibres in blends. According to a recent report cellulosic fibre production worldwide rose significantly by 11% in 2011 compared with a 3.7% rise in global demand for fibres of all types.
While synthetic fibres dominate the global fibre market with 65% share, cotton accounts for around 28% and cellulosic fibre or Viscose Staple Fibre (VSF) holds just 4% of global market or 6% of total man-made fibre segment. As in most other fibre markets, China is the leading player with 53% share of the cellulose production capacity. Lenzing, which has manufacturing facilities in Austria, Indonesia and China, holds a massive 20% share in the market, while Indian textile giant Aditya Birla Group (AVB) comprises 19% share.
The growing demand for biodegradable, environmental friendly and skin-friendly fabrics and clothing from the textile industry has been driving the global market for cellulose fibres. Shift towards replacing petrochemical fibres with cellulose fibres from major end-use industries has also been one of the major factors propelling the market growth. However, volatility in wood pulp prices, which is a major raw material for cellulose fibre production, coupled with regulatory issues due to growing environmental concerns are major factors that have been inhibiting market growth. Consequently, the world is shifting focus towards producing cellulose fibres through renewable sources and providing biodegradable solutions to various industries’ demand.
[bleft]Experts expect the demand for cellulose fibres to exceed the available supply by 5.3 million tonnes in the year 2020. This has resulted in speedy expansion of capacities for the man-made cellulose fibres and India could be the next big destination for the same.[/bleft]
Cellulose fibres are majorly consumed in the clothing industry, which accounted for more than 60% of the total consumption in 2011. Cellulose fibres are used in various regenerated forms such as corn fibres, lyocell, rayon, modal, tencel, viscose, and many others forms in the clothing industry. Along with being the biggest consumer clothing is also expected to be the fastest growing application segment for cellulose fibres, growing at a CAGR of 7.6% from 2012 to 2018. Global demand for cellulose fibres used in spun yarn is expected to reach 953.1 kilo tonnes by 2018, growing at a CAGR of 7.3% from 2012 to 2018.
Interestingly, even as predictions indicate increase in demand for cellulose fibres, Lenzing has seen a major dip in profits during the third quarter, which were down 44% from the same period of last year, while sales fell 7.7% to EUR 1.45 billion from EUR 1.57 billion last year. “The difficult market situation will continue in 2014 and possibly well into 2015. We will resolutely counteract this unfavourable situation and adjust our cost structures to the new circumstances as quickly as possible,” said Lenzing CEO Peter Untersperger.
On ground zero, world fibre demand continued to grow by 3.7%, while that of cellulosic fibre production grew by 12% in 2012 and demand for cotton, fell by 7% in the 2011-12 season (1 August 2011 – 31 July 2012) and rose by only 2.3% in the 2012-13 season. Demand in China alone fell by 3.3% as the Chinese Government’s policy of supporting domestic cotton prices at levels which are higher than world prices undermined cotton’s competitiveness in the country.
Significantly, over 85% of the increase in global cellulosic fibre capacity between March 2013 and December 2014 will take place in China and India alone. By the end of the 21-month period, Chinese capacity will represent 64.2% of the global total while India will account for 9.9%.
Admittedly, some new capacity is under construction in Western Europe – in Austria – but this will account for little over 1% of global cellulosic fibre capacity when it comes on stream.
Lenzing claims that the growing Chinese share in VSF has affected their business considerably and while Lenzing’s fibre production facilities were operating at full capacity during the first three-quarters of the year, selling prices were 14% lower than the year before. The company is blaming “price and margin pressure in China as a consequence of surplus production capacities.” The company now expects full-year sales to be EUR 1.9 billion, down from its earlier guidance of EUR 2 billion. EBITDA is forecast to reach EUR 220-230 million due to restructuring costs, compared to its previous guidance of EUR 280 million.
India on the other hand looks to be on strong footing. The key reasons attributed to a stable position in India is the depreciation of the rupee, which arrested decline in realization to 6% against 16% decline in prices in the international market and despite competitive environment from China VSF sales volumes were up 5% during the first half of the FY 2013-14. Being one of the major players in cellulose fibre, Grasim, the leading arm for cellulose fibre within the AVB group has ambitious plans to increase the VSF capacity from 334K TPA to 498K TPA. Two of its projects which are almost at completion level are Harihar Brownfield (36K TPA) and Vilayat Chemical (182K TPA). The Greenfield project at Vilayat (120K TPA) is expected to be commissioned in phased manner in the Q4 of 2014.
In the meanwhile, Lenzing now plans to focus more strongly on key end-use markets such as Asia and Turkey. It will also invest in developing Tencel for high quality textile applications and sustainable non-woven applications. Presently the company is working upon cost-cutting programme to decrease its liabilities and be more profitable. The company is also focusing on savings in material costs and “massive reductions” in operating expenses and overheads – as well as a reduction in the total number of employees. According to recent reports, Lenzing is to axe up to 600 jobs as part of “massive, far-reaching” cost cuts over the next two years as it tries to see off increasingly fierce competition.
As per Peter Untersperger, Lenzing would continue to see attractive growth potential for its products and is preparing itself now as optimally as possible for the increasingly tough competition. Cost discipline and cash generation will be our targets over the coming years.
