Global Synthetic Fiber Prices on the Rise

High global oil prices and their domino effect on the costs of materials used to manufacture synthetic fibers are expected to intensify pressure on producers.

GENEVA — High global oil prices and their domino effect on the costs of materials used to manufacture synthetic fibers such as polyester, viscose rayon and nylon are expected to intensify pressure on producers to pass on the costs.

This story first appeared in the July 22, 2008 issue of WWD.  Subscribe Today.

Moncef Hadhri, chief economist for the European Chemical Industry Council, also known as Cefic, said the trend in oil prices is pushing up prices for chemicals.

“Higher energy and fuel costs are having a negative impact” and putting a squeeze on European synthetic fiber producers, said William Lakin, director general of the European Apparel and Textiles Organization, or Euratex.

Michèle Anselme, secretary general of Eurocoton, a textile industry umbrella group, said the issue is a troubling one for manufacturers of such fibers and for spinners who buy these types of fibers.

Lakin said foreign competition — especially from Asia, where some, including those in China, benefit from subsidized energy inputs — “is creating a nightmare” for European producers, especially those in energy-intensive segments such as dyeing and finishing.

It’s been difficult to pass on the extra costs because of the stiff foreign competition and the pressure on margins. Anselme said European spinners are using more imported fibers, but also noted that producers of synthetic fibers cannot pass costs onto weavers.

The increases in raw material prices are intensifying the pressure on all types of man-made fibers, said Colin Purvis, director general of the European Association for Textile Polyolefins. The costs of materials for man-made fibers have increased “very significantly in the last few weeks.”

Purvis said the position of man-made fiber producers “risks becoming unsustainable” if they do not manage to pass some of the cost increases they are facing to customers, such as weavers and yarn spinners.

Everyone in the textile chain, from fiber producers, spinners and weavers to apparel producers and retailers, “has a responsibility to the other part of the chain,” he said.

However, some leading synthetic fiber companies are increasing prices. Advansa, Europe’s largest polyester fiber manufacturer, said this month that it will raise prices 0.10 euros a kilogram. Based on average market prices of around 1.50 euros a kilogram, the Advansa hike amounts to an increase of about 7 percent, industry experts said.

Advansa vice president Heinz Meierkord said the increase “will put many businesses into equally difficult situations.”

“However, in order to maintain a functional industry, these cost increases have to go down the value chain now,” Meierkord said.

Advansa cited the spikes in raw materials, energy and the price of paraxylene, which has reached 100 euros, or about $159 a ton, as factors that forced the company to react. Paraxylene is a clear liquid derived from the refining of crude oil. Its primary commercial use is as a key ingredient for purified terephthalic acid, or PTA, which in turn is the main ingredient of polyester. Paraxylene, also known as PX, is traded as a commodity.

Industry sources said many man-made fiber companies are approaching customers and trying to make the case as to why they need to increase fiber prices.

Euratex’s Lakin noted that the average unit price for some Chinese fabrics imported into the European Union was about 20 percent lower in dollar terms.

Milliken & Co. said this month that it will increase prices by as much as 15 percent for all of its products. Management cited “unprecedented increases” in the cost of raw materials, energy and transporting goods as reason for the move.

“Our initial and ongoing efforts to address these challenges have been focused on resisting increases, improving our productivity and aggressively pursuing cost avoidance and savings opportunities,” said Joe Salley, president and chief executive officer. “However, the speed and magnitude of recent cost escalations make it impossible for us to maintain our current pricing.”

Milliken, based in Spartanburg, S.C., is one of the largest privately held textile and chemical companies in the world. Its apparel fabrics include dyed and finished, knit and woven polyester, nylon, cotton, cotton blends and spandex blends for the women’s, men’s and children’s markets.

The cost of a pound of polyester staple stood at 79 cents in January 2006. Last month, that cost had risen to 88 cents a pound.

DAK Americas, a Charlotte, N.C.-based supplier of polyester staple fibers, has raised its prices more than a dozen times since December 2005, with increases ranging from 2 cents to 5 cents a pound. DAK produces polyester staple fibers under the Dacron, HydroPur Fiber and SteriPur AM brand names.

On June 23, DAK said its frequent price increases were spurred by “unprecedented and significant increases in energy prices.”

“DAK Americas is at a loss to project the future evolution of energy costs and its subsequent impact on materials and services,” said Hector Camberos, president and ceo of DAK Americas. “Up until this point, our industry has acted on the assumption that these escalating costs were temporary and reducing margins would overcome the immediate impact. It is now clear that we have to take decisive action to address these escalations as they show no signs of stopping.”

While rising raw material and energy costs have had a significant impact on polyester and nylon products, the effect has been less pronounced for spandex. A source involved in the spandex industry said spandex costs have remained stable as a result of an oversupply in the market.

Demand for stretch fibers was greater than supply in 2007, prompting companies to invest in new facilities. As those facilities have come online, demand has shrunk and companies have been unable to increase their costs. The source acknowledged that transportation and materials have risen, but are being overshadowed by the imbalance in supply and demand.