Tecnon (UK): MFA phase-out to have major impact on fibres

28 September 2000 11:01  [Source: ICIS news]

MONTE CARLO, Monaco (CNI)--Final phase-out of the multi-fibre arrangement (MFA) with its removal of quota and return to freer trade will have a major impact on the fibres and textiles business, a leading project financier warned on Thursday.

Peter Dinsdale, principal industry specialist at World Bank Group member International Finance Corporation (IFC), said the third and final phases of the MFA's demise will lead to increased competition, more consolidation and restructuring.

"Prices may fall and in a 'survival of the fittest' environment the non-competitive manufacturers will suffer," said Dinsdale, who was speaking here on the opening day of Tecnon Consulting's Petchem 2000* conference.

Phases one and two of the MFA - which provides guaranteed market access and growth prospects to those countries given quota - have been completed. They removed a total of 23% of quota, mostly in product groupings which Dinsdale described as of "low interest".

But phases two and three, which take effect from January 2002 and January 2005, are "serious", said Dinsdale. They will remove in phase three 18% and in the final phase 49% of quota.

Dinsdale pointed out, however, that world demand for fibre is predicted to rise by at least 2% a year from current annual consumption of around 50m tonne. This increased demand could only come from man-made fibres, he said, and at about $2500-3000 per tonne of capacity would mean an investment of $2.5bn - $3bn (Euro2.8bn-Euro3.4bn).

He warned that the textile business is fiercely competitive and can be rapidly affected by changes in market technology and material prices.

"However, it is foreign exchange movements that can quickly override a firm's apparent competitiveness. Purchasing materials in one currency and selling products in another can destroy margins if the rates move adversely."

Dinsdale also cautioned that textile manufacture is very sensitive to material, labour and energy costs and balancing these three can be difficult.

He added that wider use of the Internet was also starting to have an impact, through business to business (B2B) activity enabling textile companies to obtain better deals on dyes, chemicals and consumable components.

*Petchem 2000 is organised by consultants Tecnon (UK) and continues on Friday (29 September).

By: Neil Sinclair
+44 20 8652 3214

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