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Fiber World

An Industry For The Millennia

Fiber producers look to make strategic moves that will strengthen the man-made market.<B>By John E. Luke</B>

Fiber UpdateBy John E. LukeAn Industry For The MillenniaFiber producers look to make strategic moves that will strengthen the man-made market Recent data from the Fiber Economics Bureau provides insights into the posture of man-made fiber producers in the United States as they enter the millennium. Examination of the information, largely composed of shipment and capacity data, offers clues to strategic moves in the early years of the 21st century.Regular readers of this space will recall our many references to the inevitability of the shift of fiber, textile and apparel production to world areas offering lower labor costs and raw material (i.e., cotton) proximity.The capital intensity of the technology of man-made fiber manufacturing likely means that the U.S. industry can compete with any in the world, given access to comparable, not obsolete, technology.International WoesUnfortunately, international competitors have discovered the importance to trade accounts of retaining the entire value chain in the host country. Thus, as economies built on large quantities of inexpensive labor gradually mature and become increasingly dependent on investment capital, it is logical to see that investment directed toward industries that will capitalize on existing ventures like apparel manufacturing and distribution. In the past 20 years, we have seen imports grow increasingly national with fiber, fabric and finished product all coming from one country.In addition to the flood of finished product imports that have plagued the U.S. fiber/textile/apparel complex, man-made fibers have been transformed from generators of positive trade balances into victims of negative trade balances.While some trade accounts are heavily weighted by shifting production in response to NAFTA advantages, many fibers still suffer intense pressure from the rash of new man-made producers, built particularly in Southeast Asia. And, economic struggles in several Asian countries continue to exacerbate this situation.For example, in 1999, Korea and Taiwan together represented almost 22 percent of U.S. man-made fiber filament imports and 53 percent of man-made staple fiber imports while they accepted less than 3 percent of total U.S. man-made fiber exports.Filament Capacity And ProductionContrary to our usual preference to compare sales against capacity, we choose this time to use capacity and production since it creates the details necessary to permit commentary on operating rates and efficiencies. The U.S. man-made fiber industry reduced overall inventories in 1999, and we will comment to those changes as we discuss individual fibers.Table 1 details the U.S. man-made filament industry. It is obvious that U.S. capacity plans are flat at best few significant additions and in fact, some large subtractions, particularly in cellulosic and textile nylon products. The only expansions planned are in olefin capacity although even it is only 10 percent above 1997 levels and 3 percent above 1999 levels. Nylon filament is the large winner in operating rates for the period studied. In total, this portion of the industry operated at the 91-percent level during 1997, 98 and 99, driven by its greater than 70-percent distribution to carpets.Nylon filament production of carpet materials totaled 1,454 million pounds in 1999, an 8-percent increase in two years. It appears that, in not increasing production plans for the 1999 to 2001 period, the industry is playing a waiting game with interest rates and their impact on housing starts. Probably a wise position given the length and recently reported strength of the countrys current economic expansion.Imports of nylon filament carpet fibers are on the increase, heavily from Canada, a trend started in the mid-90s with NAFTA-driven product shifting.While nylon industrial yarn production plans are static through the period, textile yarn production plans are tailing off after serious sales erosion in the past several years.Polyester filament, both imported and domestically produced, at very attractive prices, has eaten the nylon filament market share with regularity. Nylon textile production achieved a more than 90-percent operating rate by reducing capacity, not by increasing sales.It appears that nylon values have been switched from textile and industrial deniers to carpet fibers with a hold currently in place on additional capacity.Polyester filament capacity plans show a slight increase by 2001. Textile and industrial yarn manufacturers plan only incremental increases although the textile portion, by virtue of a projected 1-percent decrease in average denier, is slightly larger than it first seems.Recent experience, and the continued lack of economic stability in several nations heavily involved in man-made fiber production, suggest that U.S. polyester filament producers will continue to struggle in price and volume against a wave of imported fiber. Industrial End-UsesPolyester producers have concluded that fibers for industrial end uses have reached a peak. The past three years shipments have averaged 508 (+/- 3) million pounds, the steadiest pattern of all major fibers. We see no joy in this capacity conservatism since industrial end uses, many times driven by detailed and complicated specifications, appear to be one of the ways for the U.S. fiber/fabric/finished product complex to insulate itself from the ravages of imports.Olefin filament shipments continue to expand as the economics and performance values of the product provide market opportunities in carpets, rope and cordage and woven constructions, including the growing area of geotextiles. While future capacity plans are couched in total olefin filament terms, recent shipment histories suggest that olefin film and olefin yarns outsell monofilament and film, and yarn will receive the lions share of investment. Filament inventories, including cellulosics, ended 1999 below 1998 levels.A 22-percent decrease in cellulosic stocks was the major star as synthetic inventories were steady, moving by only several million pounds plus or minus in each of the six major fiber categories.Cellulosic producers shipped significantly more than they produced assisted by a fashion change to glitter; synthetic producers shipped exactly what they made. Considering the price and quantity pressures exerted by imports, not gaining inventory is a victory.Staple Capacity And ProductionTable 2 details the U.S. man-made staple fiber industry. Overall production is down in the period with only olefin gaining. Polyester suffered from imported fiber competition, the "shiny" fashion helping filament cellulose in womens wear worked against staple cellulosic. Acrylics were hammered by continuing evaporation of traditional export markets and shrinking domestic markets.

Table 1 Nylon staple continued the downward slide engendered by technology and style changes encouraging the use of textured nylon filament yarns in tufted carpets.Olefin staple manufacturers rode the nonwoven fabric explosion and posted production gains every year since 1990 except for two down years in 1994 and 1995.Not satisfied with a single market strategy, olefin staple producers also have expanded into significant positions in carpet face yarns and broadwoven constructions. It appears that olefins are well positioned in markets currently not seriously impacted by imports.Cellulosic staple producers are suffering. Style has abandoned rayon staple. Facing heavy stocks and soft demand, Acordis first closed and only recently reopened their Lyocell facility.With recent operating rates in the low 60s, the industry is facing some serious questions which need to be answered in short order. Rayon maintains a strong franchise in selected nonwoven markets, but its dependence on woven fashion periodically creates dramatic sales gains.To share in that periodic largesse however, manufacturers must calculate how to bridge/survive the bad times without losing capacity capability, not an easy task given the complexity of cellulose manufacturing.Acrylic AggravationIf cellulosic producers are crying, pity the poor acrylic manufacturer. Local availability in Europe and Asia of substantial quantities of acrylic fibers has cut off traditional U.S. export programs at the knees. An industry, which as recently as 1990 was shipping 360 million pounds for domestic use, exporting almost 150 million pounds and facing only 38 to 40 million pounds of imports, now faces an environment with 60 million pounds of imports offset by only 90+ million pounds of exports with shipments to domestic usage down to 230 million pounds.Acrylic fibers no longer dominate any market; they are present in hosiery, second to cotton. They appear in double knits, second to polyester and they hold a minor share in broadwovens, small amounts in apparel and a substantial share in canvas-like materials.The same conundrum that faces cellulosic manufacturers faces acrylic producers how do I survive the down times so I can enjoy the increasingly rare good timesDomestic consumption of polyester staple has risen 28 percent to almost 2.8 billion pounds since 1990. Unfortunately, domestic manufacturers did not share the gain. As exports of staple rose from 100 million pounds in 1990 to 200 million in 1999, polyester staple production hovered around 2.2 to 2.4 billion pounds and imports escalated from 150 million pounds to more than 700 million in the latest period. All domestic growth plus another 100 million pounds went to imported staple.We see nothing in the short term that will alter this general pattern, although some strengthening of several Asian currencies could blunt some of the impacts. Considering that the Asian region has a ways to go toward economic stability, we do not plan for short-term relief.The ChallengeWhat will the U.S. fiber industry look like in the beginning years of the new century Will it continue to hunker down and slowly dissolve or will it manage a transformation leading to a new business paradigmWe spend considerable time in business strategy classes at Philadelphia University, examining change as the United States transforms from a product to a knowledge economy.A parallel to this investigation exists for the fiber industry. For example, growing up we bought records, tapes and ultimately CDs. The music industry now is moving toward downloadable offerings with no hard product changing hands. Delivery of music has evolved from delivery of a product, the record, to delivery of a service, music via the Internet.We are not so bold as to suggest virtual clothes, but do challenge the man-made fiber industry to find ways to add services to the delivery of actual products. In a knowledge economy, services generally are more valuable than actual products. Services are more resistant to external competition and potentially more valuable to the ultimate user.Production and capacity use figures seem to suggest that lines of demarcation between fiber products are blurring; they can be buttressed with creative marketing of creative offerings in new, knowledge-based end uses. ReadyEditors 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 at Philadelphia University.
Table 2 May 2000