Tencel Shrinks to Fit (1999)

• Tencel Mobile plant is shut.  
• Doubts about its (Tencel's) future.  
• It's enormous development and patent battle costs resulted in huge cost burden.
• Donald Anderson is quoted:  production difficulties constrained sales even before the Japanese (luxury) market slowdown.
• No possibility of targeting commodity markets.

Acordis' decision to mothball the 43000 tonne/year Tencel plant at Mobile, Alabama, and concentrate production at the newer 42000 tonne/year Grimsby, UK, unit coincides with Lenzing announcing that its 12000 tonne/year Austrian line will under-run throughout 1999 while work proceeds on debottlenecking it to 20 000 tonne/year.

Lyocell, the generic name for the wonder fibre, the development costs of which left Courtaulds defenceless in the face of the Akzo Nobel approach and probably lay behind the recent departure of Lenzing's ceo Heinrich Stepniczka, is not fulfilling its early promise.

'We believe in lyocell,' says Lenzing spokeswoman, Rosemarie Schuller, tacitly admitting the doubts everyone feels about its future.
Yet nobody appears to be in any doubt about the sterling qualities of the fibre, although there appears to be a certain amount of ongoing product and plant development related to fibrillation and dyeability, which aims to widen its market appeal.

The product is priced as a luxury fibre. The enormous cost of its development and plant investments, not to mention prolonged legal battles over patents between Lenzing and Courtaulds, has resulted in a huge cost burden that management tried to recoup in the pricing of the product.

The raw material costs of producing the product, however, are not, sources suggest, so very different from other commodity fibres. Is there not, therefore, a case for lowering the price and targeting the product more at mainstream markets, allowing the increased volume to reduce fixed cost per unit?

Lyocell is not a cheap cotton substitute, argues Lenzing's Mick Stempel, while admitting that over time increased sales volume could allow prices to decline.

In the initial marketing stages, Acordis chief economist Donald Anderson explains, there was no possibility of targeting commodity markets. The Mobile plant was running well below its 43 000 tonne/year nameplate capacity as adjustments and production hitches meant that sales were constrained by product availability right up to the market slowdown in Japan in mid-1997.

Will future pricing strategy depend on the writedowns which are expected to precede the Acordis demerger?

01 February 1999 00:00 [Source: ICB]