Viscose manufacturer Lenzing, in its Q1 investor call said the year has started off with a difficult market environment for viscose. Said Stefan Doboczky, CEO, Lenzing, “But overall we feel a very good start into the year. Revenue was up by 1.8% at EUR 560 million, and the major contributors were, on the one hand, our specialty business continues to do very well given the low viscose prices and I think the very strong performance of specialties, the specialty ratio increased to 47.3% compared to a year before, some 5% less. FX held but also on the volume side, we were doing well. EBITDA came in at EUR 92 million compared to around EUR 102 million year before.”
He further informed that strategy execution of sCore TEN is moving along well. “Our two flagship projects, pulp site in Brazil and the lyocell expansion project in Thailand are progressing well.
We did open a new TENCEL design centre in Singapore to support emerging, young fashion designers in Southeast Asia, and we also announced the opening of the innovation centre with University Hof, an incorporation that will be targeted for our nonwoven segments,” he said. Lenzing recently received awards for sustainable packaging with leading retailers in the DACH region.
Talking about the markets, Doboczky said, “Wood-based cellulosic fibres continue to outgrow the overall fibre market in part driven by environmental performance, in part now also driven by availability and because we don’t see, both from the supply but also from the demand side, cotton will grow stronger.
So we will have some 5% to 6% annual growth for the next five years, slightly higher than what we have seen in the last five years, so we still remain very positive in the overall outlook. We expect double-digit growth rate in our wood-based cellulosic specialties.”
Cotton outlook for the next season
“We expect a record-high cotton consumption, slightly above the 27 million. And I think together with an expected high production also there, slight increase in stocks. So overall, I think a balanced positive picture. But due to an expected high production, we see that the cotton A-Index outlook is down versus the season by some $0.07 a ton,” said Doboczky.
Chinese viscose staple fibre market
“Quarter 1 was a very difficult quarter. We saw, after already low prices in the fourth quarter of last year, prices coming down to levels that we haven’t seen for three years. Prices of RMB 12,160 a ton at the end of March, under pretty much the low point, we then saw some recuperation of prices getting close to the RMB 13,000 level then easing off again to around the RMB 12,600 mark. Why? Because we saw, again, additional capacities coming on stream of some of the major producers. But also, in March, we didn’t see the uptake being so strong. Why? Typical, after Chinese New Year behavior.
“I think we see this slightly different in the quarters to come. As a consequence, we did see quite a number of players reducing capacities. Those with poor cost position and utilisation rate in the industry dropped to 72%. If you recall, at the end of last year, we actually were still speaking of utilisation rates above the 80% mark. Dissolving wood pulp, our main raw material, also eased from somewhere around the US$ 930 mark to US$ 878 per ton at the end of quarter 1. And in the meanwhile, we saw prices even coming down to a level of US$ 850 per ton,” explained Doboczky.
He further stated that prices of the second most important raw material, caustic, remained high in Europe, but in April, there were the first signs of softening, some US$ 60 – EUR 60 per ton prices came down on Herrmann Index, and prices are now around the EUR 670 per ton spot market mark.
“Despite the strong decline on viscose prices and the decline in cotton prices, we continue to have a very strong pricing performance in our specialty fibres. And the spread between those two fibre groups and our specialties continues to increase. Again, I think a very solid, high-resilient performance in which we are very proud and which underpins the chosen strategy.”
Lenzing’s Q1 revenues were at EUR 560 million, an increase of almost 2% versus Q1 2018. Whilst sales volume was basically flat, prices were up as a result of stronger FX rates, higher prices for its specialties and sales mix improvement. Sales prices for commodity viscose were down by almost 11% in R&D.
“Our share of specialty fibres came in with 47.3% as compared to 42.1% a year before,” said Thomas Obendrauf, CFO, Lenzing Aktiengesellschaft.
A drop in EBITDA at EUR 92 million compared to almost EUR 102 million the year before, was caused by higher cost of materials and supply due to stronger FX rates on the one side and higher salaries and wages on the other side, he explained.
Net profit was almost EUR 43 million, compared to EUR 50 million the year before.
Said Doboczky, “We are working very hard on our second TENCEL Luxe line that we will finalise by the end of this year and the expansion of our Lenzing ECOVERO production in China that is well on its way. Overall, I think this underpinned the performance in the first quarter of this year. We reiterate that we feel comfortable with our 50% specialty share of revenue by next year in line with the targets that we have set ourselves.”
He further stated, “On the viscose side, we did guide that we expect some 400,000 to 600,000 tons of net capacity additions this year. At the same time, we see some capacity, at least temporarily, being taken out of the market. Consequently, we also see low utilisation rates in the industry. There are no signs yet that these are permanent closures or permanent consolidation. I think some players are just waiting until cash margins again become positive.”
“We reiterate our guidance for 2019 that given, I think, the current market environment, looking at exchange rate and extrapolating them, we expect 2019 to come in at around the same level as what we saw for 2018,” said Doboczky.
“There are today three Chinese companies who operate lyocell, however, at the moment, more on the 15,000 ton scale. We are also aware that in India, Birla has commissioned a line end of last year at a capacity of around the 20,000 ton level. And our expectation is that this will proliferate if companies will start to copy those lines and we will see more capacities coming up in China in the future.
The capacities that I mentioned, they are there for quite a while, but we also expect that over time those players will expand the capacities, too. But there are today already players out there,” informed Doboczky. “We have finalised our step-wide upgrade of lines in China already. So we now can produce ECOVERO both at our site in Austria as well as our site in China. The ECOVERO brand is progressing very well.
It is at premium of around 15%, sometimes a bit lower, sometimes a bit higher versus viscose. All the ECOVERO sales that we are booking are going hand-in-hand with co-branding agreements, so that the brand is also taken well up. And specifically, in South Asia, we see the programme being very, very successful. With respect to our specialty expansion plans in our Nanjing side, next to ECOVERO, we are also evaluating other specialty upgrade, some of which can be expected at the end of this year.”