Lenzing: Outlook for 2013

Lenzing will have 920,000 tonnes of man-made cellulosics capacity in 2013 and will sell off the plastics business.  Viscose plus Tencel capacity will rise to 1,000,000 tonnes in 2014. The megatrends driving growth will continue uninterrupted.

The additional production capacities which will be available to the Lenzing Group for an entire year for the first time will serve as the basis for an increase in sales volumes by about 13.5% to 920,000 tons. As a result, sales are expected to climb to a range between EUR 2.15 bn and EUR 2.25 bn. This includes the decline in the external sales of the Business Unit Pulp totalling a further EUR 50 mn, which in turn is the consequence of the full-scale conversion of the Paskov pulp plant to manufacturing dissolving wood pulp for the Group’s internal requirements.

The anticipated decrease in average fiber selling prices in a year-on-year comparison to EUR 1.80 to EUR 1.90 per kilogram (2012: EUR 1.96/kg) will impact earnings directly. The earnings contribution achieved by the additional sales volumes is expected to be largely offset by cost increases for personnel, chemicals and other input factors.

For this reason, in the light of the assumed development of fiber prices, EBITDA of the Lenzing Group should range between EUR 260 mn and EUR 290 mn in 2013, and EBIT is expected to be in the range of EUR 140 - EUR 170 mn from today’s perspective. This corresponds to an expected EBITDA margin of about 12% - 13% and an expected EBIT margin of approximately 6% - 8% in the 2013 financial year.

Investments (CAPEX) are likely to total approx. EUR 260 mn, significantly below the comparable level of EUR 346 mn in 2012. Sales negotiations focusing on the divestment of the Business Unit Plastics, which is not part of Lenzing’s core business, are already at an advanced stage. Binding offers were submitted.

Lenzing will respond to the low market visibility in 2013 by optimizations of market activities, cost structures as well as replacement and maintenance investments. The targeted volume growth of the Lenzing Group reaching the threshold of about one million tons of annual fiber capacity by the year 2014 remains unchanged. However, new investment projects will be subject to scrutiny with respect to the planned timeline. In the medium- and long-term, all three megatrends on the fiber market (population growth, increasing wealth and sustainability) driving growth of the man-made cellulose fiber industry will continue uninterrupted. “However, we intend to flexibly adapt our pace of growth to current market conditions and place additional emphasis on cash management”, says Lenzing CEO Peter Untersperger.

Source: Lenzing Press Release

Lenzing 2012 - Record Sales

In this first extract from the recent release on the Lenzing 2012 financial year we have a useful update on the man-made cellulosics scene, with production up 9.2% against an all-fibres increase of 1.2%.  Cotton stocks are high and prices are down 40% on 2011 so the outlook for 2013 is less rosy.

Lenzing estimate that the rise in world fiber production only amounted to 1.2% during the reporting year, with total volume up only slightly from 81.0 mn tons to 82.0 mn tons. This was in contrast to the 6.4% increase generated in 2011 and owing to the continued slow economic development. Worldwide production of man-made cellulose staple fibers, the core business of the Lenzing Group, climbed 9.2% in 2012 to 3.66 mn tons, thus expanding at a considerably faster rate than the global fiber market as a whole.

The fiber market in 2012 was dominated by a significant decrease in selling prices for all fibers. The average price of cotton, the benchmark for the entire fiber industry, fell more than 40% below the prior-year level. Cotton inventories further increased, and the global stock-to-use ratio reached a record level of more than 70%. Spot prices for viscose fibers were down by about 15% in China, the world’s largest fiber market.

Lenzing achieved a new sales record in 2012 against the backdrop of a very difficult market environment. The average fiber selling prices of the Lenzing Group fell by 12%, decreasing from EUR 2.22 per kilogram to EUR 1.96 per kilogram.

“The fiber market rewarded Lenzing for its high product and service quality as well as its close cooperation with and integration in the textile chain”, states Friedrich Weninger, Member of the Management Board and Chief Operating Officer. “In particular, our specialty fibers Lenzing Modal® and TENCEL® enabled us to successfully differentiate ourselves from standard products manufactured by Asian producers. In addition, we successfully attracted new customers and opened up new markets while launching new innovative fiber applications on the marketplace”, COO Weninger says.

Lenzing Modal® and TENCEL® achieved price premiums of 40% - 60% in 2012 compared to standard viscose fibers. Specialty fibers accounted for approximately 35% of fiber sales in 2012. However, in the course of the year, selling prices for Lenzing’s specialty fibers had to be continually adjusted downwards in line with general price levels as a result of the significant drop in cotton and viscose fiber prices.

Source: Lenzing Press Release

UK OFT on the Lenzing Takeover of Tencel - Part 3 (2004)

(Click here for Part 1)
The one third party objection mentioned appears to have been a user of either short-cut Tencel or A100, neither of which were supplied from Austria at that time, and both needing capital investment.  The "unpredictability of demand" comment from Lenzing suggests it might have been short-cut.

THIRD PARTY VIEWS
19. Numerous third parties were contacted by the OFT but not many responded. The majority of those that did respond were not concerned about the merger due to the availability of substitute fibres for lyocell. Although some third parties did view the properties of lyocell as unique, a majority did not expect this transaction to affect competition adversely within the UK. However, one UK customer did assert that the merger would lead to a reduction in its choice of lyocell supplier. But the OFT’s investigation suggests that this customer has a particular requirement that can not be met by Lenzing. This is because while the lyocell supplied by Tencel and Lenzing is chemically the same, it is cut and produced in different ways. Furthermore Lenzing submitted evidence to the OFT suggesting that the capital investment required to enable it to supply this customer would be considerable and could not be justified given the unpredictability of this demand.

ASSESSMENT
20. The merged entity would be the major supplier of lyocell and lyocell processing and production technology worldwide. However, the question at hand is whether the merger has resulted, or may be expected to result, in a lessening of competition that is substantial within any market or markets in the UK. 

Lenzing has not been a substantial supplier to, or competitor in, the UK; nor are there grounds to believe that it would become one. In addition the third party investigation carried out by the OFT revealed that for the majority of customers within the UK a range of fibres (depending on the application) appear to be available and lyocell is only used as long as it is competitively priced.

21. Consequently, the OFT does not believe that it is or may be the case that the merger has resulted or may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom.

DECISION
22. This merger will therefore not be referred to the Competition Commission under section 22(1) of the Act.

Lenzing expands Mobile Tencel plant (2013)

The Lenzing Group has successfully completed a capacity expansion at its production facility located in Mobile, AL. The expansion increased capacity of the cellulose fiber Tencel from 40,000 to 50,000 tons per year.

With this expansion investment in Tencel fibers made in the U.S., Lenzing managed to strengthen its position both as a global company and as the only cellulose fiber producer in North America. About 60% of Tencel fibers produced in Mobile are destined for nonwoven applications including sensitive segments such as hygiene and medical as well as volume markets such as baby wipes. Site Manager Kevin Allen and his team are coordinating the production of Tencel fibers designed for improved high speed carding performance.

The production process of Tencel fibers is particularly environmentally friendly. It is characterized by a closed loop manufacturing system. Being made from the renewable raw material wood sourced from responsibly managed forests, Lenzing cellulose fibers are contributing to a fair future balance between economic, social and ecological development.

“Our Mobile plant combines the geographical proximity to our US customers with an ideal location to also serve the growing South American market”, says Wolfgang Plasser, vice president and general manager of Business Unit Nonwovens at Lenzing. “Competitive energy costs, an overall stable political situation as well as highly effective logistic processes were promising arguments to expand at our Alabama site."

Source: Nonwovens Industry 11/3/2013

This recent article in Nonwovens Industry magazine probably refers to the "modernisation" and restart of Courtaulds long-mothballed 1992 Tencel line (SL1) using fibre production technology based on viscose staple wet-cutting and washing techniques.  The original SL1 line produced staple by mechanically crimping and dry-cutting Tencel tow using Courtaulds acrylic fibre technology.  This route gave lower cohesion than viscose-based technology and proved less satisfactory for Tencel destined for high speed carding and nonwovens.   Mobile now has the flexibility to make both types of fibre in one factory.

Developing a New Product: A Tencel Case Study (1998)

There's no date and no author for this Business Case Study from The Times but I'm guessing 1998.  

 

It illustrates how product development by Courtaulds has been translated into a new fibre brand within a highly competitive global market. Its contribution has provided significant opportunities for designers and fashion houses to develop innovative products for consumer markets. Such investment has allowed Courtaulds to further its business strategy objectives by creating new and improved products for the market-place into the next century, designed to satisfy the changing needs of its customers.

Read More at:   Developing a product: A Tencel case study

UK OFT on the Lenzing takeover of Tencel - Part 2 (2004)

The Office of Fair Trading explains why the 2001 EU Commission decision prohibiting the Tencel/Lenzing Lyocell merger is no longer relevant:

• Tencel lost the luxury jeans market to other fibres.
• Tencel is increasingly used in Nonwovens and is more easily substitutable.
• There have been no requests for licences for lyocell technology.
• Hanil (Korea) have started production using their own technology.

The Commission in its correlation analysis in the market investigation in CVC/Lenzing found that other fibres such as VSF, cotton and polyester were not substitutable for lyocell. It found in particular that lyocell had specific product characteristics, such as its high tenacity in both wet and dry states and low shrinkage in water which were particularly favoured by certain customers. However, the parties have argued that, in the time since the Commission’s investigation, for the majority of lyocell applications, fibres such as cotton, viscose, polypropylene or micro polyester could be and have been used as alternatives, which is supported by some third party evidence received by the OFT. The parties pointed out that whereas lyocell was originally developed as a ‘premium-fibre’ in textiles, it has from 2000 onwards increasingly been used for non-woven applications such as duvet-fillings, wipes and tea bags. Lyocell used in non-wovens as opposed to textiles is sometimes of a different quality. There appears to be a wider choice of fibres in nonwovens which could explain the lower lyocell prices for non-wovens as compared to textiles.

There does not appear to be any supply-side substitutability between lyocell and other fibres given the different production process involved and the capital investment which would be required to acquire the necessary technology.

The parties argued that they are unaware of any use for which lyocell is essential and for which no reasonable substitute exists. For both textiles and non-wovens, manufacturers have, they contend, a wide choice of natural,synthetic and cellulosic fibres. As such, customers will only use lyocell

UK OFT on the Lenzing Takeover of Tencel (2004)

The UK's Office of Fair Trading reviewed the Lenzing take-over of Tencel in 2004 and the document contains some interesting information.

• Lenzing Lyocell was never profitable: 13,500 tonnes sold from 40,000 tonne capacity in 2003.
• 8 tonnes sold in the UK for less than £10,000 in 2003 (~£1.2/kg)
• Grimsby Tencel selling at ~ £2/kg)

Some extracts from the document follow:

In 2001, the EC Commission (the Commission) prohibited the proposed acquisition by CVC (who owned Acordis, of which Tencel was then a part) of Lenzing AG (Comp/M.2187). The Commission concluded that the relevant product markets at that time were: commodity viscose staple fibres (VSF); spun-dyed viscose staple fibres; viscose staple fibres for tampons; lyocell; and lyocell production and processing technology. It held that the transaction would have strengthened a dominant position in relation to the supply of VSF for tampons and would have created a dominant position in all the remaining relevant product markets. It concluded, inter alia, that the merger would create the world’s leading supplier of lyocell, with Lenzing accounting for about 25per cent and Tencel for 75 per cent of total worldwide sales at that time.

Lenzing is active in the manufacture and supply of, among other things, lyocell fibres, which are made from wood pulp and characterized by high wearing comfort and moisture management. Its production capacity accounts for about 40,000 tonnes of lyocell from its plant located in Austria (actual production in 2003 was about 13,500 tonnes). Lenzing claims that its lyocell business has never been profitable. Lenzing imported just 8 tons of lyocell into the UK in 2003 which amounted to less than £10,000 sales value.

Tencel was part of the international financial group CVC. Its production capacity for lyocell amounts to [70,000-90,000] tonnes and it has production sites in Alabama, USA (actual production for 2003 of [15,000-25,000] tonnes), and Grimsby, UK, (actual production [20,000-30,000] tonnes in 2003). Its total UK turnover is less than £ 70 million.

On 4 May 2004, Lenzing took over the entire Tencel group of companies including Tencel. The transaction was notified to the OFT on 9 July 2004 and the administrative timetable expires 6 September 2004. The extended statutory deadline is 1 October 2004. The merger was found to qualify for review in Austria and has been notified to the competent authorities.

[...] indicates actual figures replaced by ranges by OFT.

Source: UK OFT Mergers

EU stops merger of Tencel and Lenzing Lyocell - Part 8 (2001)

The EU Commission concluded that The notified operation will create a worldwide near monopoly on the lyocell production and processing technology market and thus eliminate or severely restrict any remaining competition in that sector, enabling the parties to act independently of potential competitors and of their customers.

On 25 September 2001, CVC proposed the following hoping to remove these competition concerns:-

258. A non-exclusive licence under Lenzing and Acordis lyocell patents is to be given to an independent third party licensee approved by the Commission. This licensing will not include the right to sub-license. It will include the provision of any necessary technical assistance and support (including production and processing technology). The geographical scope for the licence is to encompass at least the whole of the EEA area.

259. The remedy proposals also provide for sub-contract manufacturing arrangements for a period of up to five years, up to in aggregate [redacted] tonnes per annum of lyocell, giving the third party licensee access to the merged group's production infrastructure.

The Commission was not impressed and finally concluded that the proposed undertakings do not remove the competition concerns identified in its Statement of Objections and cannot form the basis for an authorisation decision.

While we've ignored the paragraphs related to the merger of the viscose operations of Acordis and Lenzing, the lyocell conclusions are separate and convincing.  If the Commission had been considering just the merger of Tencel and Lenzing Lyocell, there is no reason to suppose the conclusion would have been any different.

Case No COMP/M.2187 CVC/Lenzing

EU stops merger of Tencel and Lenzing Lyocell - Part 7 (2001)

"The new entity [Tencel and Lenzing] when merged will have a monopoly in the downstream market for lyocell staple fibre and will thus have no interest in seeing this monopoly challenged by a potential market entrant on the basis of a licence for their own technology."

247. Acordis and Lenzing are the only two players currently active in the market for packages of 'ready-to-operate' lyocell production and processing technology. Each of them produces lyocell based on own technology. With a view to settling an intellectual property dispute between them, both entered into a cross licence agreement on 22 December 1997 whereby each party granted the other a nonexclusive, royalty-free worldwide licence to manufacture, use and sell lyocell and lyocell products for the lifetime of the respective patents. As a consequence, each of the parties has had full access to the other party's lyocell production technology since December 1997.

248. Together, the parties hold the vast majority of all existing patents for lyocell production and treatment.

249. On the basis of their respective patent rights, Acordis and Lenzing are in a position to block or significantly delay the entry of third parties to the lyocell production market. Third parties who might consider marketing lyocell production and processing technology or selling lyocell production lines to potential producers of lyocell are consistently confronted with a danger of violating these patents and of subsequent litigation with the parties. For the same reasons, third parties who could be seen as potential producers of lyocell are reluctant to purchase lyocell production and processing technology or production lines developed by suppliers other than Acordis or Lenzing.

250. The notified operation will render it more difficult for third parties to obtain packages of licences for Acordis' and Lenzing's lyocell production and processing technologies. First, the number of potential licensors will be reduced from two to one; whilst there are currently two potential licensors (redacted) there will be only one potential licensor left after the merger. Secondly, the incentive to grant packages of 'ready-to-operate' licences to third parties will be significantly reduced after the merger; as set out above the new entity will hold a monopoly in the downstream market for lyocell staple fibres and will thus have no interest in seeing this monopoly challenged by a potential market entrant on the basis of a licence for their own technology. In view of these effects competition in the development of individual production and processing patents in this market will also be stifled as the number of potential buyers will be reduced.

(more to come)

Case No COMP/M.2187 CVC/Lenzing

EU stops Merger of Tencel and Lenzing Lyocell - Part 6 (2001)

The Commission makes the point that neither Birla nor Hanil nor the unspecified Chinese competition could enter the market in the near future and if they did they'd likely infringe the Tencel/Lenzing patents.  There's also surplus lyocell capacity and the incentive for the merged company to reduce this and seek higher prices.

237. Furthermore, the parties' Reply does not indicate at what time it realistically expects most of these third parties to enter the market. As regards the market entry of the Indian Birla Grasim group, which is foreseen ìwithin the next two years, the Reply omits that this time-frame is put into question by the nonavailability of certain critical equipments on account of patent restrictions on design by Lenzing/Acordis and hence may require more efforts and longer time.  Furthermore, any potential market entry faces the threat of patent litigation by Acordis and Lenzing. As regards the reference made to market entry by a Chinese company whose name the Reply fails to reveal, it has not been confirmed by the overall results of the market investigation; in particular, the Commission has not been able to enter into contact with such a company during the market investigation in order to get confirmation from that potential market entrant itself as to its future strategy. Nor has Hanil of Korea confirmed to the Commission to what extent it is already active or planning to become active in the lyocell fibres market.180 Based exclusively on vague submissions regarding third parties, the probability of market entry in the near future is not sufficiently great for the Commission to conclude that significant competitive constraints will be exercised on the parties in the short run.

238. Under these circumstances, potential competition cannot be considered a source of sufficient competitive constraint on the parties, capable of outweighing the effects of the notified operation.

239. The market investigation has furthermore revealed that the lyocell market is currently characterised by overcapacity. Consequently, there will be an incentive for the new entity to reduce its lyocell production in order to achieve higher prices (integrating Lenzing into Acordis' strategy based on its high-priced branded product Tencel), in particular given the high investment in lyocell technology to be recouped. It should be noted that a majority of customers expect lyocell prices to rise or at least to remain stable in the event of a merger between Acordis and Lenzing, whereas they would expect prices to fall in the absence of the merger. Whilst most customers regard their current bargaining power as balanced, the overwhelming majority expects it to be rather weak if the notified operation goes ahead.

(More to come)

Case No COMP/M.2187 CVC/Lenzing

EU stops Merger of Tencel and Lenzing Lyocell - Part 5 (2001)

Acordis/Lenzing expected Chinese and Korean lyocell factories to be in production by 2003 and used this as part of the logic for merging.  The Commission did not find the arguments convincing and predicted the "worldwide monopoly" created in lyocell would last a lot longer. 

232. To date, Acordis and Lenzing have been competing against each other in the lyocell market, in particular in the EEA, with Lenzing charging significantly lower lyocell prices than Acordis. The notified operation will create a worldwide monopoly on the lyocell market and thus eliminate any existing competition between the parties.

The new entity will be able to act independently for the following reasons:
233. Whilst the parties have predicted the market entry of one Chinese and one Korean producer for around 2003, as well as the market entry of other producers at a later stage, the market investigation conducted by the Commission has revealed that no market entry by third parties may be expected in the short run. On the contrary, those amongst the potential market entrants who responded to the Commission's questionnaire stated that it would take them several years before they could become operational and could effectively compete against the parties in the lyocell market.

234. Lenzing and Acordis argue that their technology patents do not constitute an obstacle for market entry and that such intellectual property rights might be difficult to enforce. This opinion has been strongly contested by third parties interested in entering the market. The Commission's investigation has revealed the existence of a considerable technological barrier to market entry as the parties hold a significant number of patent rights for lyocell production technology (see paragraphs 247-248 ).

235. In their Reply, the parties argue that the Commission's Statement of Objections underestimates the likelihood of new entry. They put forward a list of potential market entrants, based on the replies of competitors to the Commission's questionnaires.

236. The Commission, having considered these arguments, does not find themconvincing. Indeed, several of the potential market entrants named by the parties are in reality research institutions involved in the development of lyocell production and processing technology; they can under no circumstances be regarded as potential producers of lyocell fibres.

(More to come)

Case No COMP/M.2187 CVC/Lenzing