Monday, February 25, 2013

EU stops Merger of Tencel and Lenzing Lyocell - Part 2 (2001)

The last post referred to the lyocell technology.  This one refers to the market for lyocell fibres. 

The following paragraph from the EU Final Report of the Hearing Officer for the CVC/Lenzing merger case records the conclusions from consulting lyocell fibre customers about the proposed merger:

63. The market investigation carried out by the Commission has confirmed that there is not sufficient demand-side substitutability between lyocell and other fibres for them to be included in the same relevant market. Indeed, the vast majority of the customers interviewed stated that they were not in a position to replace lyocell in their products at all. According to their replies, certain customers would have to cease manufacturing the product concerned and the vast majority of customers would simply not change anything in the event of an increase of 5-10% in the price of lyocell. The most common reasons for not switching were the specific product characteristics of lyocell and the requirements set by downstream customers. 

The report adds in a footnote that these findings were confirmed by a statement in an internal document submitted by CVC.  Later in the same section:

70. Likewise, there is no supply-side substitutability between lyocell and VSF.Although both viscose and lyocell staple fibres are man-made cellulosic fibres, lyocell is produced in separate plants by an entirely different production process, a solvent spinning process in which the fibre is formed by directly dissolving wood pulp in organic solvents (whereas viscose has to undergo a different chemical process of slurrying and xanthation, which in contrast to the lyocell process involves the formation of a derivative, then dissolving the xanthate in dilute caustic soda before it can be extruded through spinnerettes). Special equipment and machinery are required to produce lyocell. The production technology is highly capital intensive, resulting in lyocell currently being the man-made cellulosic staple fibre with the highest cost of production by far.

Both competitors and customers assume, however, that these production costs might fall significantly once the considerable investment in research and development for this comparatively new technology
will have paid off, given that the lyocell production process is in fact a process involving fewer production steps than the viscose process.

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