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Fiber World

Balancing The Polyester Equation

Increased Asian production threatens to tighten an already strained market.

Polyester remains the man-made textile fiber of choice with 1998 shipments of slightly over 35 billion pounds.According to the Fiber Economics Bureau (the source for the statistics in this article), in March 1999, world capacity to produce both filament and staple products totaled 44.7 billion pounds, which means that the world industry operated at approximately 78 percent of capacity in 1998. Filament and staple capacity utilization were almost identical with the former operating at 79 percent of capacity and the latter at 78 percent.Interestingly enough, production and planned capacities for staple exceeded filament until 1994 when production of filament at 12.5 billion pounds passed staples 12.0 billion pounds. Since then, it has been slow expansion for staple and onward and upward for filament. In this article we will examine this progression and explore its implications for the coming millennium. Staple FibersAccording to the Fiber Economics Bureau, as recently as June 1994 fiber producer plans for worldwide capacity for staple fiber in 1995 totaled 16.3 billion pounds. By the time 1995 ended, total staple shipments amounted to 12.2 billion pounds (75 percent of capacity) and grew at an 8+ percent annual compounded rate to 15.4 billion pounds in 1998. Ever reaching for new heights, industry capacity plans for 2000 exceed 20 billion pounds.Not surprisingly, this growth is heavily focused on Asia (including China) and seems undisturbed by the recent financial meltdown. In 1994, Asian fiber economies planned 9.3 billion pounds of staple capacity by December 1995. Of this, 2.4 billion was in mainland China, 6.1 billion in Pacific Rim nations and the rest, 780 million pounds, in Japan.In 1995, these same nations shipped 7.1 billion pounds: China with 1.8 billion pounds; Pacific Rim countries with 4.6 billion pounds led by Korea with 1.0 billion pounds and followed by Japan with 685 million pounds. Based on 1995 plans, China operated polyester staple plants at 75 percent of capacity, Pacific Rim nations at 75 percent and Japan at 88 percent. Already an also-ran in 1994 in the polyester staple fiber race, the United States planned 1995 capacity at 2.8 billion pounds and when 1995 arrived, actually shipped 2.3 billion pounds, an apparent capacity utilization of above 80 percent.In 1999, the pattern continues to focus. Staple capacity plans among Asian nations continue to escalate, totaling 13.4 billion pounds for late 2000. China projects 3.6 billion, Korea 1.8 billion, Taiwan plans 2.6 billion, and other Pacific Rim nations 4.7 billion with Japan pulling up the rear with 700 million pounds. The concern is not the total of these possible shipments but the different operating rates enjoyed in each country.For example, in 1998 Japan, Korea and China operated polyester staple plants at and average of 88 percent of capacity. Taiwan and other Pacific Rim countries operated at approximately 75 percent with the area averaging 80 percent overall. Two concerns abide. First, if Asian countries continue to install already announced capacity and operating rates approximate 1998, year 2000 shipments will total almost 11 billion pounds, virtually identical to world polyester staple shipments in 1994.Secondly, if Taiwan and other Pacific Rim nations raise their capacity use by becoming even more aggressive in pricing, the world will be dominated by Asian polyester staple. If these two areas can improve their operating rates by only 10 percent, another 1 billion pounds will enter the polyester trade in 2000. With this hanging over the market, we see little opportunity for profit improvement among the larger producers. It is no wonder that United States staple capacity plans have stagnated at approximately 3 billion pounds for the past several reporting periods. After experiencing less than 80-percent operating rates for the past several years, we are not surprised that the industry is restructuring, changing ownerships and generally sending a message of asset harvesting to the financial community. Filament FibersIf staple growth is hard to fathom, filament capacities and production plans are almost beyond belief. In 1994, with more faith than knowledge after shipping only 11 billion pounds in 1993, the world industry planned filament (industrial, POY, textured and flat yarn) capacity of 16 billion pounds.The largest capacity increases were planned for the United States (+11 percent from 1994 levels), China (+11 percent from 1994) and Pacific Rim nations (+8 percent from 1994).World ideas for polyester filament continues to expand. In June 1999, filament capacity plans for the year 2000 totaled 26+ billion pounds. The United States dominated with 2.2 billion, with Asia following at a total of 19.4 billion. Other nations followed with 5.9 billion in China, 3.7 billion in South Korea, 4.7 billion in Taiwan and 5.1 billion in other Pacific Rim nations. Polyester TradeIf we are concerned about the drag placed on prices by excess staple capacity, we have that and more concerns about the same happening in filament. Table 1 calculates recent availability of polyester fibers. It provides a look at United States trade in polyester and suggests some clues about the short-term future and possibly a few hints about long term prospects. U.S. consumption of polyester is stagnant although, considering the quantity of garment imports inundating the country, stagnation is a victory for the fabric industries.Unfortunately, the same cannot be said for fiber manufacturers. In staple, U.S. producers have exported approximately 200 million pounds annually for the past four years. In excess of 50 percent of this staple was shipped to our NAFTA partners in Canada and Mexico with the former holding a decreasing lead over the latter. It will be no surprise to see Mexican use of United States staple surpass Canadian use in but a few years.Industrial polyester filament is relatively well insulated from serious import penetration, probably from the history of specifications surrounding many industrial applications. Of total filament imports, less than half are high tenacity yarns and Mexico is the supplier of almost half of that.Given the specification nature of industrial fibers, we expect to see little import pressure, and what does occur will come from U.S. producers shifting production to NAFTA partners in response to comparative advantages. Textile filament, however, suffers an almost entirely opposite fate. United States producers have been severely restricted in attempts to export polyester textile denier products. World prices have been depressed by fallout from the Asian financial crisis to levels totally unsatisfactory for even marginal returns.However, there are world suppliers willing to accept recent price levels and they have inundated this country with inexpensive flat and textured yarns, the economics which are good for the fabric producers.Considering the expansion plans of Asian producers, we see little opportunity for U.S. producers to return to serious export competition but do see ample opportunity for continued offshore pricing pressure. Even as Asian economies recover, they likely will direct additional production to local garment production so, even if the fiber doesnt get here in direct competition, it will arrive indirectly in garment form and continue the horrific pressure we already feel. We have no indication of additional postponements of capacity announcements so the stage seems set for continued pressure for at least the next few years. Editors Note: John E. Luke is owner of Five Twenty Six Associates Inc., Bryn Mawr, Pa., a consulting firm specializing in strategic marketing and operations facing textile fiber and fabric manufacturers. He is also a professor of textile marketing and management at the Philadelphia College of TextilesandScience.

November 1999