Competitive challenges facing European nonwovens producers; trend continues despite lifestyle and p.Nonwovens do not, in general, have the favorable image of apparel, household textiles or even carpets, which are highly visible, mostly colorful and often highly fashionable products. In contrast, many nonwovens are often invisible and have to perform difficult or even unpleasant or "dirty" jobs. However, there is a saying in England (Yorkshire, more precisely): "Where there's muck, there's brass." On that basis there is money to be made out of nonwovens. But where, and by whom? This article will considers how production costs may impact on the future pattern of nonwovens production by location and product type.
The Market Outlook
The nonwovens market continues to grow strongly as current applications expand and new end uses are developed. Production in the developed regions such as the U.S., Japan and Europe continues to rise. But production volumes in Asia-Pacific had by 2004 had already outstripped those in North America and, with a 30% share of global volumes (excluding needlepunched carpets), the Far East is within striking distance of Western Europe.
Materials and Technologies Used
Polyester and polypropylene now dominate nonwoven markets accounting for around 75% of raw material usage. In Europe, the market is being driven almost entirely by polypropylene in meltlaid form and polyester in carded staple fiber form. In both China and Japan, polypropylene melt laids are growing rapidly.
So the nonwovens market looks attractive from a demand point of view, especially for the synthetic polymers, polypropylene and polyester. What is happening to the production costs for the most important nonwoven product types and what impact is this likely to have on the construction of nonwovens in the future? More importantly, how will the competitiveness of different regions be affected?
Chemical Markets Associates Inc. (CMAI) has developed a nonwovens model that breaks the cash cost of production for different nonwovens types into three broad components: materials, other variable costs (mostly power and other utilities) and fixed costs (including manufacturing labor and other plant-related costs). Taking melt laid nonwovens produced in Western Europe as a base case, it is apparent that:
* Raw material costs dominate, accounting for some 85% of cash costs for both polyester and polypropylene products.
* Polyester melt laids are no longer more expensive than polypropylene in terms of both raw materials and despite higher variable costs (power).
Comparing chemically-bonded carded nonwovens with melt-laid polyester products, it is apparent that raw materials, variable costs and labor are all more expensive for the carded product, due mainly to the use of expensive resins such as ABS for the bonding process, the more labor intensive nature of the process and especially the significant use of power in drying. Other carded, drylaid nonwovens have a different cost profile, depending largely on the bonding process used. The CMAI model enables all major different combinations of polymer, web formation and web bonding to be assessed and compared over time and by region.
An analysis of cash costs of production across regions shows that both North East Asia and the Middle East currently have a significant competitive cost advantage over Western Europe for melt laid polypropylene nonwovens. Europe is currently facing higher raw material costs due to the higher level of polypropylene prices in Europe (and the U.S.) generated by capacity shortages (as discussed below).
In the case of labor costs, the developing countries of the Far East benefit from wage rates in many cases only 5% of those paid in Europe. In contrast countries such as China bear power costs even in excess of Europe and significantly higher than countries of the Middle East, who benefit from the region's enormous low-priced gas reserves. As a result, the Middle East becomes potentially the most competitive producer of meltlaid nonwovens in total cost terms.
In the case of chemically bonded carded polyester fabrics, the high cost of Chinese power offsets that country's low labor costs, pushing its total cash costs of production above almost to that of West Europe. The Middle East, conversely, becomes even more competitive, relatively.
Although there is a question mark over power costs in China, there is a huge level of overcapacity in the domestic polyester industry, which represents a real threat to other non-wovens producers. CMAI estimates that, following massive investment in both fiber and chip production over recent years, China currently holds surplus staple fiber capacity of more than 3 million tons with chip production operating at no more than 32% of capacity. This spare capacity cannot be filled in the medium term by spun yarn production for use in conventional textiles and plant owners will be increasingly looking to develop nonwovens business, even if margins have to be sacrificed.
Over During the last eight years, most feedstock prices for synthetic polymers have risen significantly. This has been driven by a rapid rise in the price of oil and natural gas, generated by strong demand from countries such as India and China that have grown more quickly than supply and by geopolitical concerns in many oil-producing regions. Oil prices have tripled during the last five years and are showing although recently have shown signs of easing.
In the case of propylene (the main feedstock for polypropylene), the situation has been worsened by a tightness in capacity in the West, exacerbated by the impact of the U.S. hurricanes in 2005. This has resulted in a rapid upward trend in propylene prices since 2002, significantly faster than for both PTA and, following its recent decline, MEG--the two main polyester feedstocks. This narrowing of the differential between the three feedstocks is expected to reverse beyond 2007 as new propylene capacity comes onstream and both PTA and MEG prices come back above re-investment levels. However, looking further into the future, the gap between the two sets of feedstock prices is forecast to continue to narrow from historical levels on a trend basis.
Upward price pressure has also been coming from the demand side. Polypropylene is used for a range of different plastic and textile applications and virtually all have enjoyed strong rates of growth over the last five years, especially in the West.
Capacity has therefore also been tight for polypropylene since 2004, although this will ease by 2009 as new capacity also comes onstream and demand slackens, in all areas other than injection molding.
As a result of these feedstock trends and capacity tightness we have seen polypropylene resin prices outpace those of polyester chip, to the extent that in some areas prices of the two polymers are expected to be broadly similar by 2007-08. From 2008, as feedstock costs reverse and polypropylene capacity eases, so a gap will reappear between polypropylene and polyester prices. However, as with feedstock prices, the long term trend is for the historical gap between the two polymers to continue to narrow as polypropylene remains fundamentally tighter than polyester.
Changes in polymer prices to 2010 will impact on the relative competitiveness of different regions. In particular the decline in polypropylene resin will be greatest in the U.S. and, to a certain extent, in Europe; as a result, the competitive gap with developing countries will decline, although the Middle East will retain a distinct edge through its low power costs.
In the case of carded polyester non-wovens, the cost gap between regions also declines by 2010, but the Middle East remains the lowest production cost region and Europe retains its small advantage over China.
Impact On Raw Material and Technology Selection
The selection of raw material and production technology in nonwovens is determined principally by the performance of the finished product, rather than on relative production cost. We have already seen that the historically higher cost of polyester staple fiber has not prevented its use in nonwovens growing more rapidly than that of polyester polymer in melt laids.
However, nonwovens is undoubtedly a highly competitive market and we have seen that raw material prices are critical to overall manufacturing costs. Although polypropylene offers superior qualities in key end uses in terms of lightness, cover, wicking, etc. relative to polyester, and its historically relatively low price has undoubtedly helped it capture a large share of the nonwovens market, especially in melt laids. This share has been maintained despite a recent closing of the price gap between the two polymers, but as the trend continues in the long term, there will inevitably be pressure to reconsider the suitability of polyester as a base material.
In most nonwoven product segments there is a relatively low level of potential substitutability between the two polymers due to the required technical performance of the segment.
However, there are several nonwoven product segments where polyester and polypropylene are both used today and where there may be potential for substitution between the two polymers given a significant change in their relative prices. Not many are large in global volume terms, but some, such as coverstock, carpet backings, geotextiles and interlinings, are of sufficient size to have a potentially significant impact on the shares of the two major polymers in nonwovens overall.
There is a wide variation in the production costs of nonwovens by polymer and production technology and relative costs will change over time, particularly as polypropylene and polyester prices take different paths over the next five years. In the case of meltlaids, however, the overwhelming importance of raw materials in total production costs and the long term similarity of these costs globally results in relatively small differences in total costs between regions. The low labor cost of developing countries, combined with low power costs in the Middle East, nevertheless provide these regions with a small cost advantage over Western Europe both now and into the medium term. A long-term closing of the price gap between polypropylene and polyester, albeit with cyclical fluctuations, could encourage a reconsideration of the potential for polyester in certain end uses.
In the case of energy- and labor-intensive products such as chemically-bonded carded polyester nonwovens, material costs still dominate, but power costs become more relevant; the competitive advantage of the Middle East grows, while China, at least on the basis of firm power costs, actually becomes less price competitive than Western Europe.
The overall competitive position of China is enhanced by a huge surplus in polyester chip and staple fiber capacity, but it is the Middle East, with its inherently low power and feedstock costs and where several fiber companies have already invested in downstream nonwovens manufacturing that could prove to be an emerging threat in global nonwovens markets.
director fibers, Europe, Middle East and Africa