Written by David J. Price
Published in February 2019 Issue of Nonwovens Industry
Industry in recovery mode after a five-year period of expansion
After a tidal wave of new capacity installations across the world over the last five years, producers utilizing spunlaid polypropylene technology are set to take a breath while they await further demand growth to absorb capacity and assess still newly introduced technology advances. Nevertheless, global capacity continues to increase as new capacity entered many regional markets in 2018 and continues to do so in 2019 from previously announced capacity expansions. Oversupply exists in most global regions. With some exceptions, producer profitability is below expectations and largely driven by high cost of manufacture associated with lower than expected capacity utilization and in some regions, high raw material costs and volatility.
At present, only Gulsan and Berry Global have acquired the newest full scale versions of Reifenhauser 5 technology. PF Nonwovens (CZ Republic) will commission a Reicofil 5 Compact semi commercial line near the end of 2019. Both Berry Global (China) and Gulsan (Turkey) will commission their Reicofil 5 machines in Q4 2019.
While orders for Reicofil 5 and other modern technology may appear paltry thus far, one should consider that the technology is new, costly and introduced near the end of a period in which a record amount of new capacity was installed. In addition, previously announced capacity additions will continue to be installed through 2020 using Reicofil 4 S technology ordered just prior to the introduction of Reicofil 5. Such installations include Toray lines in China and India wherein capacity will be fully realized in 2020 and 2021, a Gulsan line in North Africa where capacity will be fully realized in 2019 and Mitsui lines in Japan where capacity will be fully realized in 2019.
We expect the pace of new capacity investment will accelerate after 2020 as capacity is absorbed. This expectation may be advanced by the decommissioning of earlier generation capacity. We also expect that upgrades to existing capacity may occur to enhance the capability of existing machines. Several producers, particularly in Asia, are keen to invest as soon as possible to utilize plant infrastructure recently built to house multiple lines and to advance their competitive position.
- In North America, 35,000 tons of new capacity has or will enter the market (Fitesa, UniqueTex) during 2018 – 2019 preceded by 20,000 tons by Avgol in 2017. This new capacity was introduced in an already oversupplied market. Demand growth for baby diapers is slow as a result of low year-over-year birth rates, but demand for adult incontinence products is increasing at a 5-6% annual rate. Some rationalization of early generation capacity is expected. It is likely that no new capacity will be further installed until capacity utilization improves.
- In South America, no new capacity has been installed since the Fitesa Brazil commissioned a new, high capacity line in the 2H 2016. Market demand in the region fell dramatically during 2015 – 2016 precipitated by the worst recession in Brazil in its history and the first successive years of recession in Brazil since the 1930s. During this period, demand for disposable hygiene and in other nonwoven markets fell to 2013 levels. The collapse of the Venezuelan economy and the impact of high inflation in Argentina are also retarding regional demand growth. Adult incontinence products hold a strong future growth potential when the region’s economic trends improve. While a weak recovery is underway, nonwoven capacity utilization is low and is not expected to increase substantially soon. Despite an opportunity to address aging technology, no new capacity is expected until economic growth returns to the region and capacity utilization improves.
- In Greater Europe, 85,000 tons of new capacity has or will enter the market during 2018 – 2020. This includes the very large 35,000-ton Gulsan R5 line in Turkey which is expected to be commissioned in Q4 2019 and fully commercialized in 2020. Other new capacity becoming available during this period will be the R5 semi commercial line by PF Nonwovens and the full capacity of lines commissioned by Union (Poland) and Fitesa (Germany) in 2017/2018. These installations follow a period of significant new capacity additions in Greater Europe by Hayat (Turkey) and others, which together with new installations during 2015-2016, overran demand growth in both regional and export markets.
- In the Middle East, capacity increased 20,000 tons during 2017 – 2018 (Avgol) which was more than offset by the closure of the Mada plant due to a fire eliminating 32,000 tons in the region. Then again, capacity growth in North Africa increased 40,000 tons as new lines were commissioned by Hayat and Gulsan in Egypt during 2018. Demand in the Middle East and North Africa remains well below capacity in the MENA region but capacity utilization is beginning to improve. Still, significant new and modern capacity exists in the MENA region which is not fully utilized nor expected to be so for some time.
- In South Africa, previously announced new capacity installations by PF Nonwovens and Spunchem will be fully realized in 2019 – 2020.
- In Southern Asia, there has or will be 24,000 tons of previously announced new capacity commissioned in India during 2018-2019 and another 38,000 tons during 2020 – 2021. We suspect there will be even more capacity installed in India before 2023 as demand growth is strong.
- In Asia-Pacific, 71,000 tons of new capacity was commissioned and/or will be fully realized during 2018 – 2019. Demand is growing but slowing as compared to prior periods. We expect further capacity announcements in the region which may not occur until after 2020.
- In China, 76,000 tons of new capacity was or will be fully realized during 2018 – 2019 and another 50,000 tons will be available in 2020. While we expect more capacity will be installed during 2021 – 2023, we estimate demand for Chinese-made spunlaid polypropylene nonwovens to be softening as compared to prior year-over-year rates which could impact future capacity growth.
We expect global demand growth in tons from 2018 – 2023 to be around 5% annually. Regional demand growth will vary. Demand growth will be the highest in Southern Asia (India) and Africa followed by that in Asia-Pacific and China. Demand growth will be more moderate in North America, Greater Europe and the Middle East. Demand growth in South America will continue to recover from a significant economic downturn in 2015 – 2016. Demand growth in China and Asia-Pacific is slowing in comparison to prior periods but will still remain attractive.
In summary, capacity growth will slow to allow for the absorption of new large scale capacity expansions that have occurred and which will continue to be added to the market in North America, Europe, the Middle East and Africa. Recession in Brazil affecting much of South America dampens the outlook for capacity expansion in the near term, but aging capacity will be replaced once market demand justifies doing so. This could lead to pent up demand for new technology once market conditions improve. Demand growth for spunlaid polypropylene nonwovens in Southern Asia, Asia-Pacific and China is expected to be the highest in the world through 2023 and capacity will be installed to meet that demand. With that said, there is the risk that competitive pressures will result in more capacity than needed being added in these regions.
In the near term, we expect selective existing machine upgrades to address modernization needs as it becomes necessary rather than installing large scale production lines. This forecast could change if early generation capacity is decommissioned and replaced with new technology. We expect a pause in new capacity announcements in most global regions through 2019 and possibly most of 2020 with some exceptions in India, Asia-Pacific and China.
Leading global producers have achieved and continue to actively pursue advancements in spunlaid polypropylene nonwoven loft and softness surface features used in premium hygiene products to meet customer demand. While the highest consumer demand for these products is in Asia, demand for these products is also increasing in Western Europe and the U.S. It is remarkable to witness the results thus far of innovations on this front with producers addressing this challenge using and exploring mechanical (calendar patterns, air-through bonded dryers, bicomponent spinning and fiber crimping techniques) and raw material variations.
The high cost of modern spunlaid polypropylene nonwoven technology will lead to lengthy and careful deliberations when considering an investment in new capacity. Investors will seek a high degree of certainty on the timing expected to reach full machine capacity utilization and projected investment returns.
Rather significant consolidation, strategic positioning and M&A activity over the last few years led to aggressive geographic diversification, technology modernization and capacity growth with little rationalization of costs to date. We expect investments in new capacity and acquisitions to be increasingly scrutinized in the near term in reaction to lower than expected returns on recent investments.