Lenzing Lyocell on the Fast Tack (1997)

Here's a comprehensive Nov. 1997 overview of the Lenzing Lyocell development by Marjorie Walker of ICB, quoting Heinrich Stepniczka.

• Heiligenkruez at 10,000 tpy in the summer, 12,000 tpy now and 15,000 tpy by Xmas.
• 60,000 tpy plant next in Asia, Lenzing or Heiligenkreuz.
• Existing investors will have to be convinced pretty quickly of Lenzing Lyocell's success or they will vote with their feet.
• Industry sources do expect Lenzing Lyocell to be a success

Lenzing's new Lenzing Lyocell fibre is making its commercial debut on world markets. After years of development and patent disputes with Courtaulds, the Sch1.5bn ($120m) 12 000 tonne/year plant at Heiligenkreuz, Upper Austria, came onstream this summer and Lenzing is already pushing ahead with plans for doubling its capacity. There is even talk of a second major facility.

A lot rides on Lenzing Lyocell's success. Lenzing is the world's largest producer of viscose fibre but the global market shrank in 1996 and has shown little growth in 1997. In Europe and the US environmental expenditure and declining viscose
markets suggests a future filled with constant restructuring and cost-cutting. Lenzing is already implementing a programme set to save Sch500m/year at Heiligenkreuz by 1998 and similar schemes are under study in the US.

Losses of Sch157.4m were recorded in 1996 and the first half of 1997 has seen these losses escalate to Sch174m. Viscose fibre prices in Asia have been hit by low polyester prices.

As a result Lenzing has been forced to write down the value of its US business, undergo heavy restructuring costs in Europe and deal with the fact that its investment to increase viscose capacity in Indonesia has occurred when the Indonesian currency has crashed.

As a result, existing investors will have to be convinced pretty quickly of Lenzing Lyocell's success or they will vote with their feet. Two Austrian banks, Bank Austria with 33.4% and Creditanstalt Bankverein with 16.7%, hold 50.1% of the equity.

There are buyers out there. IndoRayon recently purchased Kemira's viscose business and Hoechst has recently joint ventured its European textile polyester and staple fibres with Indonesia's Multikarsa.

However, industry sources do expect Lenzing Lyocell to be a success. The fibre is absorbent like cotton, strong like polyester, machine washable and capable of a variety of finishes suitable for all sorts of garments.

Lenzing Lyocell's environmental credentials are impeccable, says Heinrich Stepniczka, chief executive officer and chairman of Lenzing. The lyocell process is clean compared to the older viscose process. It is claimed to be a virtually closed-loop process with no impact on the environment. The product is made from sustainable forests, the solvent which dissolves the woodpulp is recovered to 99.5% efficiency and the product is biodegradeable.

Lyocell's origins lie in Kodak's discovery, in 1966, that cellulose dissolves in the solvent n-methyl morpholine n-oxide (NMMO). Akzo Nobel began to explore the fibre possibilities in a pilot plant in the US back in 1978 but decided to sell the technology to Lenzing which built a pilot plant in Europe in 1990.

Meanwhile Courtaulds, UK, was working on similar technology, had built a pilot plant in the UK in 1987 and started up its 43 000 tonne/year plant for Tencel in Mobile, Alabama, in 1992. Courtaulds will start a second 42 000 tonne/year plant in Grimsby this month.

The patent dispute between the two companies appears to be resolved see ECN 28 July 1997, page 6)(. And a Lenzing source says the two companies may work together to promote the fibre in global markets.

One of the reasons for the Lenzing Lyocell plant's location at Heiligenkreuz, rather than Lenzing, was the availability of grants from the European Union and from the Burgenland government. Cellulosics are not bound by the standstill agreement in synthetics and can receive subsidies for capacity under the normal regional aid rules of the European Union. The plant is situated in a new business park, only a few hundred yards from the Austro-Hungarian border with a twin business park just the other side of the border in Hungary.

Although demand for fibres has picked up prices are still depressed. Production capacities for polyester and its raw material, PTA, are running ahead of demand and polyester prices are set to remain low until 2000.

Lenzing Lyocell, burdened by costs of the product development, new plant and heavy investment during the next few years, must position itself as a high-priced niche fibre rather than try to compete head-to-head with low-priced fibres.

Industry sources are sceptical that Tencel or Lenzing Lyocell will ever reach commodity fibre volume use but there is nothing so costly about the process that it could not eventually compete in the commodity fibre markets.

As volumes rise capital cost/tonne will fall. The first 12 000 tonne/year line at Heiligenkreuz is set to cost Sch1.5bn but a second line, now buildings and utilities are in place will only cost Sch400-500m. Initially the first line was set to produce 10 000 tonne/year. It now produces 12 000 tonne/year. By Christmas Stepniczka believes it could be producing 15 000 tonne/year. A second line will be added in the first half of 1999 and with the addition of a third line, Heiligenkreuz, could eventually produce 60 000 tonne/year at a cost of Sch2.6bn.

Lenzing intends to build a second plant - possibly in Asia, possibly at the original Lenzing site or Heiligenkreuz. The main prerequisite will be a site with utilities in place so the 60 000 tonne/year plant will cost only Sch1.5bn.

03 November 1997 [Source: ICB]