NEW YORK — Lenzing AG is performing a global balancing act.
The world’s leading rayon producer — with an annual production of some 550 million pounds — is not only trying to maintain its competitive edge in a depressed European market, but also expand its Far Eastern production and grow its 1 1/2-year-old U.S. business.
The expansion includes increased production at its Indonesian plant to 154 million pounds, up from 80 million, and a contract from the Chinese government to build a 45-million-pound rayon plant in China.
Lenzing is also entering into a joint venture in Salvador, Brazil, to convert a paper pulp plant into a dissolving plant that will enable the company to start up a Brazilian rayon plant. No timetable has been set for this.
Lenzing also plans to double production of Lyocell — its cellulosic fiber made from wood pulp — to 1.1 million pounds.
What makes the company’s investments so significant in the corporate scheme of things is that, unlike its competitors in the global fiber game, Lenzing is heavily dependent on fibers for its overall health. About 70 percent of Lenzing’s sales come from fibers. Conversely, DuPont derives 17 percent of its sales from fibers; Hoechst AG, about 20 percent; BASF, less than 18 percent, and Courtaulds, 33 percent. Lenzing’s other businesses include plastics, film and paper processing, but its executives point out that fibers drive the bottom line.
“We are not a giant pharmaceutical company, nor are we creating high tech rocket fuel,” said Henrich E. Stepniczka, Lenzing’s chairman.
“We are first and foremost a fiber company, and that’s why the worldwide fiber situation impacts our firm in the manner it does, and that is why Europe concerns us right now,” Stepniczka added.
The overall difficulties in the world market are reflected in Lenzing’s profits. Although 1993 figures haven’t been released, the company’s profits in 1992 dropped about 31 percent to about $4.8 million (59.8 million Austrian schillings at current exchange rates).
Sales in 1992 were up 1 percent, to about $479 million (5.9 billion Austrian schillings).
Lenzing, based in the Austrian town of the same name, is the leading European rayon producer, making nearly 285 million pounds, and commands about a 40 percent share of Europe’s rayon market.
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Stepniczka, along with Harald Schneider, president and chief executive of Lenzing Fibers Corp., the company’s U.S. arm, outlined the firm’s immediate strategy during a recent interview at the company’s New York sales and marketing offices.
Here’s how the executives describe Lenzing’s three major areas of interest in fibers.
Rayon: Europe
The European rayon market, Stepniczka said, is suffering from overcapacity, a shrinking textile producer base and, of course, a rough economic climate. In fact, according to a study done by Kurt Salmon Associates, the European textile community will lose about 30 percent of its membership by the year 2000, shrinking from 11,000 mills, converters and fiber producers, to about 7,500.
“It hasn’t been a pretty story in Europe at all,” Stepniczka said, pointing out that Lenzing, which does more than 75 percent of its business in Europe, has lowered its European work force from 3,800 to 3,000 in two years. But, he added, employee cuts have not hampered fiber production.
Also adding to Lenzing’s European woes, he said, are about 750 million pounds of lower-quality rayon coming out of Central and Eastern Europe — not to mention Far East imports — which Stepniczka said are having an adverse affect on rayon prices throughout Europe. The prices are about 5 percent lower than U.S. prices.
The executives said an overall cutback in capacity will be needed if market conditions are to improve.
“Factories in the former Soviet Union are pumping fiber and materials into the European markets but, in time, a shakeout will take place,” said Schneider. “Since we are the biggest producer in Europe and have taken the steps to position ourselves for the bad market, we feel we can be one of the few rayon producers left standing when the dust settles.
“Europe is experiencing the same thing the U.S. textile industry went through a few years back,” Schneider said. “The difference is that the lines of communication between mills and fiber producers are much better in the U.S. than in Europe.”
However, the executives said they can see a bright side to the dark European rayon situation. Because the company has already poured more than $500 million into environmental upgrades, it will be in a superior position to companies that have been slow to make similar investments. Those firms, the executives said, will be forced to charge higher rayon prices when they’re forced to upgrade, as the environmental movement gains strength.
Rayon: The Far East and United States
Lenzing’s Far East operation, a 42 percent ownership in Indonesia’s South Pacific Viscose (SPV), is a key to the firm’s future success in rayon, said Stepniczka, “because unlike the European market, the market in the Far East is exploding.”
The executives said the growth has been dramatic. In the last 12 years, this particular market — Indonesia, Taiwan and Korea — has grown from zero production to nearly 300 million pounds. Lenzing’s share of this rayon market, from its plant in Purwakarta, is about 11 percent. In past years, Schneider said, SPV was producing rayon to service this market only. Now, Lenzing, through SPV, is aiming to service additional areas, such as Pakistan, China and Australia.
“We’ll be shipping a lot to those markets within two to three years,” Schneider said, noting that the quality levels currently are a little behind the U.S. and Europe and the plant there doesn’t run with quite the same efficiency.
As for Lenzing’s joint venture in China with the government, Schneider said, “China is a huge market, but their rayon production is low. When we get some production there, around 1997, a lot of rayon fiber will be consumed there.” Schneider said the plant, which will be near Beijing, will replace older, inefficient rayon operations currently in China and will not flood the market with rayon.
Lenzing entered the U.S. market in July 1992, when it purchased BASF’s rayon plant at Lowland, Tenn., and has built slightly on BASF’s U.S. market share so that it now is approaching 40 percent.
Courtaulds, one of Lenzing’s chief rayon rivals throughout the world, is the leading rayon producer in the U.S., at about 250 million pounds, while Lenzing’s is about 100 million, with an additional 25 million coming on stream by the middle of this year.
“We see the U.S. as the most important market for us right now,” Stepniczka said. “We saw an opportunity to get into this market with the right strategy and at the lowest cost we could have. I’m not so sure we would have been as successful if we would have had to build our own plant, or go into a market head-to-head with two big players [Courtaulds and BASF].”
The executives said U.S. success remains tied to the health of the overall textile industry there and the U.S. consumer, who has many apparel options.
“The U.S. is a more fickle industry than even that of Europe,” Stepniczka said. “Rayon in the U.S. is hot and cold at different times. In Europe, it’s more constant throughout the year. The U.S. consumer likes more choices.”
Lyocell
Depending upon which industry view one takes, Lyocell has been either an expensive folly or something that will propel Lenzing into the 21st century.
Lenzing has pumped millions of dollars into the project that, after seven years, is still pretty
much in development stages. And Lenzing’s main competitor in the cellulosic battle, Courtaulds, has begun producing about 40 million pounds of Tencel – its version of Lyocell – and has placed it in U.S. mills such as Burlington Industries and New Cherokee Corp., and various Japanese and Italian firms.
“There are still some problems inherent with Lyocell, such as fibrilation,” Stepniczka said. “However, we want to correct them at the fiber-producing level and not have to have the people who use the fiber correct it. When we overcome that problem, we’ll have a product that will be the future of Lenzing.”
Lenzing, which will double capacity at the Lyocell pilot plant, is also looking to build a plant for the new cellulosic, “most likely in Europe,” said Stepniczka.