A major update on the Tencel business by Alex Scott of International Chemical Business magazine based mainly on an interview with David Wilkinson:
Industry experts have been backing lyocell, a high performance cellulose fibre, in increasing numbers since its emergence from the Courtaulds pilot plant in the UK in 1988. But are they justified in tagging it as the fibre of the future? Alex Scott reports on the latest twists in the emergence of lyocell.
'These are Next jeans - they are a 40:60 mix with cotton. Oh, and this is Versace,' says my guide peeling a brilliant orange blouse from its hanger. The white tiles and soft lighting belie a chic clothes boutique - but really I am being treated to a view of the future of the cellulosic fibre, Tencel, at Courtaulds' London headquarters.
'It is very comfortable, and strong, and attractive, and is certainly superior to viscose rayon,' says David Wilkinson, an executive director at Courtaulds, responsible for the company's fibres business.
With demand increasing it is apparent that Wilkinson is not the only one to be impressed: 'Tencel has substantial advantages over viscose, which is a 1.7m tonne/year market... the potential of Tencel is considerable,' says one UK analyst.
At present, most of the 43 000 tonne/year of lyocell produced is made in the traditional staple version,Tencel, by UK company Courtaulds at its two Mobile, Alabama-based plants in the US. But while the world's general fibres markets are currently oversupplied, lyocell fibre supply cannot keep up with demand.
With qualities beyond those of many of its competitors, Tencel has been able to command a price of £3000-4500/tonne ($4500-6750/tonne). While that has restricted Tencel to the fashion houses, Courtaulds' aim is to make the product more widely available.
CAPACITIES FOR LYOCELL
CELLULOSIC FIBRE, TONNE/YEAR
|Courtaulds, US||45 000||55 000|
|Courtaulds, UK||-||42 000|
|World total||45 000||>121 000|
SOURCE: COMPANY REPORTS
The only problem is that the alternatives tend to be lower priced. Cotton, for instance, sells for 50% of the price of Tencel. But optimistic supply/demand models by analysts predict Tencel will be able to command no less than £3000/tonne (roughly the same as cotton) by 2002.
Naturally, such high prices have attracted interest from other parties: Akzo Nobel is pouring cash into Newcell, a continuous filament version of lyocell being developed under a collaborative agreement with Courtaulds. The two companies are participating with Asahi in a market evaluation study in one of the strongest textiles markets, Japan. Newcell is now being produced from a pilot-scale plant in Obernburg, Germany.
'If the results of the Japanese project are positive then Akzo will be looking to begin full-scale manufacture in Germany,' says Akzo Nobel product information officer John Dyson.
Meanwhile, Austrian company Lenzing is consolidating its position as the world number two supplier. The company is preparing to start producing lyocell staple at market volume. Following a shareholder vote in favour of a large-scale lyocell plant in 1995 at Heiligenkreuz/Lafnitzal, in the Austrian province of Burgenland, 24 000 tonne/year of capacity is planned to come on line in 1997. Total investment costs for Lenzing are estimated at around Sch2bn ($284m).
Courtaulds' US production is planned to rise to 55 000 tonne/year by the end of 1997. In the UK it will have a 42 000 tonne/year plant in Grimsby coming onstream at the end of 1997 to supply the European market. The only regret with the plant so far is that the extra capacity is not already in place.
Despite a promising future for Tencel, slow growth in Courtaulds' other European fibres markets has depressed the company's profits in the last two years. Although the company has a short-term problem, analysts have Courtaulds, and specifically Tencel, pegged for big growth.
Lenzing has erred towards caution in the general fibres market in 1996 on the basis of slackening demand in Europe: 'For the time being, no positive reaction can be expected from the market, as demand from end consumers in the western industrialised countries continues to be unsatisfactory,' says the company. Courtaulds reputedly gained £2m in profit from Tencel sales in 1995, and is expected to earn profits of around £15m from the fibre in 1996.
'We are forecasting a doubling of fibres profit for Courtaulds over the next two years with Tencelcontributing £35m operating profit by 1999,' says an analyst at Merrill Lynch.
Testament to the craving for Tencel is that the second line at Alabama, which came onstream in May, has already been sold-out. However, while the competitive manufacturers are still looking to get up and running, Courtaulds is already wary of smothering its fledgling market with oversupply.
'We have land and facilities in the US to use to increase our production in a few years if we need it. But it will depend on the growth of the North American, and equally importantly, the South American market,' says Wilkinson.
'The markets for Tencel are the most sophisticated in the world - in the Far East you have the biggest with Japan. But we have not opened in less sophisticated markets, for instance, we are not selling to the Philippines or to Indonesia because there is simply not enough of it.' Courtaulds intends to enter them only when it can ensure a steady supply.
'We think the market is also ready in India - I am confident that it will be, but we are holding back until our supply of fibre improves. What we do not want to do is open up a new market but to be unable to supply it properly. Eventually I think we will have an Indian plant to supply the Indian population - I have no doubt about that, the only question is when.'
If Tencel is to make it as a main fibre, with sales of more than 1m tonne/year, Courtaulds believes it will have to manufacture in China, India and Indonesia: 'All three have large textile process industries, especially in cotton, and if Tencel is going to become a mainstream fibre it will have to be large there.'
The future for Tencel looks particularly bright when accounting for the recent cost reductions for lyocell's main raw material, wood pulp. Prices for the raw material have been falling since a high of October 1995 when it was being sold for around $900/tonne, to the present level of around $450/tonne.
Yet lyocell has retained its high price. 'Viscose passed its raw material price reductions back to the customer - we have not seen that yet with Tencel,' says UK analyst Alasdair Nisbett. Although with the yen dropping against the dollar the price of Tencel in Japan has come down somewhat. 'They had to bring it down,' said one analyst.
Early entry of capacity increase is now critical for Courtaulds as well as the other core players if they are to maximise their earnings.
Lyocell still has a long way to go before it fulfils the predictions that it will be one of the world's most important fibres and will be competing with the sales of cotton by 2020. But on its present form there is every indication that it will. 'Another fibre can always come along,' says one London analyst.
But weave your way around that scenario and lyocell soon emerges as the most exiting fibre around. With wood pulp as its primary raw material, lyocell is even placed as what can only be described as an environmentally friendly product. And Courtaulds wants the product image to stay that way: 'All of our suppliers use renewable trees from farmed forests which are replaced at least at the rate they are harvested,' says Wilkinson.
The real key to lyocell, however, seems to have not yet been fully marketed - its ability to mix the hard-wearing, soft-feeling properties of lyocell with other fibres: 'Cotton, linen, wool, polyester; all these blends with Tencel look promising,' says Wilkinson. Courtaulds even talks of non-textile applications.
It has been reported that by 2020 lyocell could sell as much as the 19m tonne/year - the same amount as cotton. Wilkinson, however, maintains contact with terra firma: 'The real aim is to supplant viscose rayon, I will not be here to see it, but reaching a target of 2m tonne/year by 2020, well, I would be a very happy pensioner,' says Wilkinson with a broad smile.