Acrylic faces tough climb

04 April 2005 00:01  [Source: ACN]

Acrylic fibre producers may have enjoyed a favourable 12 months, but it is hardly the time to relax as the future promises to throw more challenges their way. Malini Hariharan reports

After a lacklustre 2003, when global acrylic fibre demand grew by barely 0.2%, last year was fairly robust in terms of demand and profitability. This was despite the pressure from high crude-oil, propylene, and acrylonitrile prices.

In a paper presented at the recent China International Acrylonitrile and Acrylic Fibre Forum, Simon Garmston of PCI Acrylonitrile estimated that the global market grew by 1.3% last year, slightly slower than the consultancy’s earlier forecast of 2.2%.

PCI expects growth in 2005 to be slightly above 2004, and its longer-term analysis suggests demand growth of 1.8%/year during the next 10 years.

China continued to pull the global market forward, with local demand rising by 3.16% to 1.12m tonne last year. Figures from the China Chemical Fiber Economic Information Network (CCFEI) indicate that local production increased by 6.35% in 2004 to 662 000 tonne. The country imported about 460 000 tonne, almost the same volume as in the previous year.

The growth in production was a result of the commissioning of new plants which raised China’s total capacity by 130 000 tonne/year. China now accounts for 23% of world acrylic fibre capacity, up from 11% in 1995. The figure is projected to rise to 25% in 2005.

Japan’s share

Japan accounted for 34% of total acrylic fibre imports by China followed by South Korea (19%) and Taiwan (18%). But according to the CCFEI, Japan’s share has declined over the past three years while imports from South Korea and Taiwan have grown. New faces have also emerged with exporters from Turkey (since 2001), India (since 2002) and Portugal (since 2002) gradually making their presence felt.

In terms of pricing, the Chinese market saw a steady rise almost for the entire year, moving from Rmb15 000 (US$1813)/tonne in early 2004 to reach a peak of Rmb20 000/tonne in October. Prices dropped thereafter following a decline in raw-material prices, the onset of the low-demand season, and lower acrylic yarn prices.

Looking ahead, there is a consensus that China will continue to play a major role in the global picture. This is especially so given the mega changes that are taking place in the textile industry.

The end of the Agreement on Textiles and Clothing (ATC) from 1 January 2005 marks a major turning point in the history of world textile trade and especially China’s role. It is widely expected that China’s dominant share in world trade will increase in the coming years, especially if Chinese companies have their way.

Local companies have already been preparing for this event.

At the conference, Wen Yi, vice-president of the Longma Textile Group, pointed out that huge investments had taken place in the Chinese textile and garments industries. According to the Shanghai Garment Trade Association, over 5000 new weaving mills were added in the country in 2003. Fixed-asset investment in the textile industry climbed by more than 144% in the first half of 2004, with total investment exceeding Rmb10bn.

The CCFEI said that the number of cotton-spinning units in China increased to 6851 in 2004, up from 5639 in 2003 and 5529 in 2001. New wool-spinning units also started operations, with the total figure at 1435 units in 2004, up from 1371 units in 2003 and 1166 units in 2002.

China’s textile and garment exports amounted to US$97.385bn in 2004, 21% higher than in the previous year.

Textile quotas

PCI’s Garmston pointed out that acrylic mill demand continues to shift, with the growth mainly being in China. And the end of the textile quotas is likely to speed up this trend. PCI estimates that China accounted for 44% of world acrylic fibre mill demand in 2004; this is projected to grow to 62% in 2013.

While the removal of quotas promises to lift growth of the Chinese garments, textile, and synthetic fibre industries, there are some factors that threaten to make the going difficult.

Shortage of power and labour and also rising costs are an issue for the medium term. More immediately, there is also a concern that the US may introduce restrictive measures to clip China’s wings, which may in turn prompt other countries to follow suit.

The concern appears justified, as various groups in the US and from other countries have been lobbying hard to prevent a complete domination by China.

US job losses

The US has already seen significant job losses in this sector and more are taking place as imports from China grow. A recent report in the New York Times stated that 12 200 job were in lost in US apparel and textile industries in January 2005. Using figures from China’s customs office, the National Council of Textile Organisations calculated that China is selling a cotton knit shirt at US$1.71, down 45% from 2004. The low prices have helped drive up imports of cotton knit shirts by 1836%.

Restrictions by the US, which would affect the entire synthetic fibre industry, are not the only hurdle that acrylic-fibre producers face.

A bigger one is probably competition from other man-made fibres. Higher acrylic-fibre prices in 2004 may have helped producers improve profitability but this could have come at a cost as prices of other fibres were lower.

The trend has continued. In February 2005, acrylic fibre was priced at Rmb18 000/tonne; significantly higher than viscose (Rmb15 300/tonne), polyester staple fibre (Rmn12 150/tonne) and cotton (Rmb12 000/tonne).

In a paper presented at the conference, Charles Fryer and Marjorie Walker of Tecnon OrbiChem pointed out that 2004 was a boom year not only for acrylic fibre but also for all synthetic fibres as global production of man-made fibres climbed by 7.7% to reach 37.9m tonne. But global acrylic-fibre production increased by only 1%.

‘Put this in the context of polyester production growing almost 10% to 24.5m tonne and we have some idea of the competitive challenges that acrylic fibre is already facing,’ they said.

In fact, acrylic fibre has already lost ground. CCFEI estimates that acrylic fibre accounted for only 5% of Chinese synthetic-fibre consumption in 2004, down from 7.5% from 1999. Globally, acrylic fibre’s share has stagnated at around 9% for the past few years.

And with China continuing to invest heavily in polyester, it is very likely that polyester prices will remain at low levels, putting pressure on acrylic fibre.

‘The scale of polyester-fibre production, especially in China, the ready availability of polyester-fibre technology and the rapidly increasing overhang of capacity makes it likely that polyester producers will be competing strongly for business for some time to come. This will make it virtually impossible to raise margins and will reinforce polyester’s position as the cheaper fibre option,’ said Fryer and Walker.

Acrylic fibre will be further squeezed by high propylene prices, which in turn will exert upward pressure on acrylonitrile prices.

The only hope is that there will continue to be some areas of the textile market where acrylic fibre’s properties will make it uniquely suitable.

China’s demand growth

The other issue of concern is a slowing in China’s demand growth that must be viewed in the context of the country’s growing self-sufficiency.

The CCFEI says that, although China’s demand for acrylic fibre has grown continually over the past few years, the rate has slowed down. For instance, demand rose by 14% in 2002, but slowed to 6.8% in 2003 and 3.16% in 2004, which was well below the country’s GDP (gross domestic product) growth of around 9.5%.

With new plants being commissioned, import growth has also slowed.

Fryer and Walker point out that in a boom year for fibre consumption, and in particular for China’s acrylic-fibre demand, imports grew by only 1% last year.

Imports are already being affected by new Chinese production and local demand will be increasingly satisfied by domestic production. China is expected to add 135 000 tonne/year of capacity in 2005.

Imports are now at a peak, and the decline will be quite marked by 2007.

Tecnon estimates that, if Chinese demand grows by 5%/year to reach 1.235m tonne in 2006 and 1.296m tonne in 2007, imports are likely to fall to 415 000 tonne in 2006 and 326 000 tonne in 2007 assuming a domestic production of 820 000 tonne in 2006 and 970 000 tonne in 2007.

As China’s production grows and consumption slows, there are likely to be further closures of uneconomic plants in other parts of the world.

Poor margins

Another factor forcing closures will be poor margins.

Tecnon estimates that acrylic-fibre margins had narrowed steadily from US$1000/tonne for much of the latter part of the 1990s to US$500/tonne for Taiwanese producers at the beginning of 2005. For North American and European producers, the margins on fibre exports were even lower than those in Taiwan. With many producers not making enough money, the painful decision to close plants was inevitable.

Since 2000, nine companies have closed plants or slashed capacities. In 2003, Asahi Kasei Chemicals shut down a 70 000 tonne/year facility in Japan, and in Q1 2004 Kanebo closed a 31 000 tonne/year plant, also in Japan.

The latest move was by Solutia, which announced earlier this year that it would exit the business after stopping acrylic-fibre production at its plant in Decatur, US, in April. The plant would continue to operate to produce intermediates for nylon.

Solutia said that despite tremendous efforts to reduce costs and improve productivity, the business had simply been unable to compete as fibre and textile manufacturing had moved outside the US.

Commenting on Solutia’s move, Fryer and Walker pointed out that a 2003 decision by Solutia to cut the commodity-fibre business had not been sufficient. ‘Concentration on value-added fibre products was not successful in returning the business to profitability and it had continued to act as a serious cash drain. This has happened in spite of the strong US economy and the weakening dollar that had undermined the competitiveness of imports from Europe,’ they said.

Europe too has seen closures and the remaining producers are expected to see fresh challenges once Alexandria Fiber Co commissions its new facility in Q3 of this year.

There is little to suggest that the process of capacity rationalisation has stopped, pointed out Fryer and Walker.

‘Businesses are for sale, but even the vulture funds seem to be steering clear as they attempt to understand the long-term impact on the acrylic-fibre industry of the textile-quota withdrawal and the sharp, and likely long term, rise in propylene pricing. The latter has led acrylonitrile prices to levels that undermine the competitiveness of the acrylic-fibre business and yet do not provide a return for the acrylonitrile producer either,’ they said.

With China being the only major growth area, acrylic-fibre producers have increasingly started targeting this country for their next investment. Montefibre has decided to form a joint venture with Jilin Qifeng to build 150 000 tonne/year of capacity in two phases.

Others, such as Aksa and Thai Acrylic, are also scouting for opportunities in China but have yet to make an announcement.

The acrylic-fibre producers may have no choice but to follow the garment and textile industries in making China the centre of their universe.

Major acrylic fibre producers in China

Company	Location	Capacity*
Maoming Acrylic Fibre	Maoming	30 000
Qinhuangdao Acrylic Fibre Plant	Hebei	45 000
Fushun Acrylic Fibre Plant	Liaoning	50 000
Fushun Flame Retardant Fibre	Liaoning	5 000
PetroChina Daqing	Heilongjiang	65 000
Chemical Agent Plant of Daqing Oil Field	Heilongjiang	30 000
Shanghai Petrochemical	Shanghai	150 000
Anqing Petrochemical	Anhui	70 000
Qilu Petrochemical	Shandong	45 000
Shandong Dacheng Chemical Fibre	Shandong	8 000
Zhejiang Jinyong Acrylic Fibre	Zhejiang	60 000
PetroChina Lanzhou	Gansu	14 400
Jilin Qifeng	Jilin	116 000
Xuyen Acrylic	Qido	10 000
* tonne/year
Source: CCFEI, Industry

Major acrylic fibre projects

Company	Location	Capacity*	Startup
Alexandria Fiber Co	Amreya, Alexandria, Egypt	18 000	Q3 2005
		18 000	early 2007
Daqing General Petrochemical	Daqing, Heilongjiang, China	15 000	Q3 2005
Hangzhouwan Acrylic Staple	Ningbo, Zhejiang, China	60 000	Q3 2005
		120 000	2007
JiMont Chemical Fibre	Jilin	100 000	end-2006
		50 000	end-2008
Kanebo	Hebei, China	30 000	late 2005
Mitsubishi Liyang	Ningbo, Zhejiang, China	50 000	Q3 2005
		50 000	2008-09
Thai Acrylic Fibre	Sara Buri, Thailand	20 000	Sept 2005
* tonne/year
Source: Tecnon OrbiChem/ACN database

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