Austria’s Lenzing halts Alabama fibres expansion on trade war fears, cost escalation

LONDON (ICIS)–Lenzing has temporarily mothballed a project to expand lyocell fibres capacity at its Mobile, Alabama, site, on expectations of higher tariffs on the back of global trade tensions, and a potential surge in construction costs, the Austria-headquartered producer said.

The company will instead increase focus on its lyocell expansion project in Prachinburi, Thailand, but as a result of the decision no additional tonnages are expected on the market in 2019 or 2020 aside from the completed 25,000 tonne/year expansion at Heiligenkreuz, Austria.

The Austria expansion had been expected to be complete by early 2018.

A buoyant US labour market increases the risk of “substantial” cost overruns on the Mobile project, and the prospect of higher tariffs due to tensions between key economies has increased the risk profile of the project. It will be reassessed on an ongoing basis, Lenzing added.

“This decision will slow down the implementation of the lyocell specialty staple fibre growth,” Lenzing said in a statement.

Lenzing announced plans in late 2016 to develop a new 90,000 TENCEL fibre plant in Mobile at an estimated cost of €275m. The company had been aiming to increase its specialty fibre capacity by 50% by 2020.

The US has implemented around $250bn-worth of tariffs on imports from China, and China has responded with $110bn-worth of tariffs on US product, with the most substantial tranche implemented this week.

The US Federal Reserve increased interest rates to 2.00-2.25% on 26 September, and hinted at additional increase amid a hike in its 2018 annual growth forecast for the country.

US President Donald Trump has been critical of the central bank’s decision to continue hiking interest rates and winding down its accommodative monetary policy, but the move is necessary to combat inflationary trade war pressure, according to German research house ZEW.

“The new comprehensive US tariffs imposed on Chinese imports are likely to result in more inflationary pressure,” said ZEW corporate tax and public finance department head Friedrich Heinemann.

“As a consequence, US consumers will be the ones to bear the economic burden of Donald Trump’s punitive tariffs in the form of higher prices for Chinese goods,” he added.

Pictured: Lenzing’s Alabama facilities
Source: Lenzing