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Emerging Markets: China, India, Latin American and Eastern Europe



A NONWOVENS INDUSTRY Special Report



By Karen McIntyre, Editor



Published August 17, 2006
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As growth for nonwovens wanes in developed regions such as the U.S. and Western Europe, users and makers of the material have been looking hard to find new world regions prime for growth. While there are many areas where use of nonwovens—and the products that use them—remains low, many of these regions face challenges, economically, culturally and logistically. Therefore, companies have to weigh many factors when deciding where, and how, to allot their resources.

In the following pages, Nonwovens Industry looks at four major world regions or countries—China, India, Latin American and Central/Eastern Europe—to see how the nonwovens industry is carving its niche in these areas. Whether it is a string of joint ventures targeting a range of markets in China, the success of Eastern Europe’s largest nonwovens producer or multinational investment in Latin America, the nonwovens industries in these new markets are as diverse as their socioeconomic and cultural influences.

While no one has a crystal ball to see which markets will provide the most growth down the road, nonwovens manufacturers from the largest on down are making sure they are poised to take advantage of any opportunity that comes their way.


CHINA

Companies look to build operations, establish joint ventures to take advantage of China’s rapid growth

Nonwovens activity has been heating up in China as the industry looks to cash in on the tremendous growth opportunity this huge country presents. With a population of nearly 1.4 billion, this massive consumer audience could be just the spot major converters of nonwoven materials, such as diaper producers, are looking for to grow their businesses in the 21st century. In 2004, China accounted for nearly half of the nonwovens output in the Asia-Pacific region, according to statistics furnished by INDA, Association of the Nonwoven Fabrics Industry, and it is estimated that the nonwovens industry there will grow 12% per year during the next several years. In the past 10 years, output there has increased more than five-fold, from 115,000 to 650,000 tons.

And, the rate at which nonwovens producers are investing in the region is staggering. Nearly every major international roll goods producer has announced initiatives there in recent years and news keeps coming. In June, Italian topsheet producer Pantex International established a relationship with Japanese fiber and nonwovens producer Chisso Corp. to produce and sell unique perforated nonwovens in China. Pantex will install a new production line making perforated nonwovens in Gangzhou, China, while Chisso, through its Chinese subsidiary, will contribute fiber and nonwovens know-how and bicomponent spunbond material to the venture. Also, in June, New Jersey-based Precision Custom Coatings formed  a joint venture agreement with Ningbo Yihua Textile Factory, an  Asian textile manufacturer. The new venture, PCC Ningbo Textile Co., Ltd. will expand PCC’s apparel interlining production  capabilities, enhance its product line and augment its ability to  offer localized relationships with apparel manufacturers throughout Asia.

Also making significant strides in China is Polymer Group, Inc. Earlier this year, the North Carolina-based nonwovens producer announced it would establish an Asian headquarters in Shanghai. This announcement followed two major growth initiatves last year. One involved the construction of a new spunmelt manufacturing facility in Suzhou, which will make PGI the country’s largest spunmelt maker, as well as an expansion of current technology  based in Nanhai, China, where it already operates a sold-out spunmelt and a sold-out spunbond line. In announcing these initiatives, PGI CEO James Schaeffer said that these efforts follow its customers’ movement towards China in recent years, particularly in the medical market.

Also stepping up its efforts in China has been the world’s largest nonwovens producer Freudenberg. Last year, the company strengthened its position in the Asian interlinings market through the purchase of Nantong Hymo Col, a market leader in shirt interlinings in China. The purchase has extended the leading market psoition of Freudenberg & Vilene as dedicated suppliers to the garment industry and has expedited its growth in Asia, the largest textile region of the world. Freudenberg is also in the process of adding a fourth line in its Suzhou, China facility, which will also boost its interlinings business.

This acquisition follows the creation of a joint venture designed to boost Freudenberg’s position in the Chinese interlinings market. Called Freudenberg & Vilene (Changchun), the venture, which acquired the filtration business of Changchun Autofilter Company, is supplying motor and cabin air filter housings as well as filter elements to leading automotive manufacturers in Northern and Western China. “Asia is growing across the board and we are positioning ourelves to benefit from it,” said Freudenberg managing director Stephan Tanda.

From a local standpoint, China’s nonwovens industry continues to grow as well with several major nonwovens producers based in China. While these producers tend to largely sell products to local converters, their output continues to become more sophisticated and so does the rate of export. The province of Guangdong, which borders Hong Kong, is one of the principal nowovens production areas within China and accounts for one-third of the country’s total nonwovens production. The region has 140-150 nonwovens producers with about 330-340 production lines representing each of the various nonwovens technologies. Many of these faciliities are new with state-of-the-art nonwovens technologies. Reportedly about half of the region’s nonwovens are exported, largely to other Asian countries.

The other nonwovens producing regions of China are Fujian, which also borders Hong Kong, as well as Zhejiang, Jiangsu and Hebei in the north.

INDIA

As the textile industry wanes, the focus is on nonwovens and engineered fabric applications in India

Several factors are influencing nonwovens growth in India but two stand out. For one, the Indian government is implementing many programs to attract foreign businesses to the country; for another, the company’s steep tradition in textile production, which has been thwarted somewhat recently due to Chinese competition, means there are plenty of raw materials, such as viscose, cotton and polyester, available to fuel nonwovens production.

According to reports, the Indian consumer market represents a huge customer base with some 300 million of the estimated one billion population in the lower middle class. These people have the disposable incomes necessary to consume nonwovens-based products such as disposable diapers, feminine hygiene items and impregnated wipes. This economy also boasts a young population and increased salaries.

Among the companies that have invested in India are General Electric, DuPont, Eli Lilly, Motorola, Microsoft and IBM, to name a few, and more specifically to the nonwovens industry, several users of nonwovens—while not yet producing there—are very interested in attracting the Indian consumer. Kimberly-Clark, for one, entered the India market in 1995 with Huggies, through its Hindustan Lever joint  venture and is today the largest marketer of disposable diapers in the country. Since then, K-C has followed its Huggies launch with the introduction of other disposable products such as Kotex and Depend. Meanwhile, competitor Procter & Gamble has also been selling diapers, under the Pampers  brand name, since 1995, first through a distribution agreement and later on its own.

Regardless of the manufacturers, the movement of disposable products into the Indian market has been challenging, not only because of consumers’ spending power but because of cultural standards. For one, Indian mothers believe that cloth diapers are best for their infants’ skin, despite studies to the contrary. For another, Indian households tend to favor reusable items and scorn waste.  Because disposable diapers and other such items are, by their very nature, single use, they tend to be used only outside of the home, and therefore not very often.

Despite these challenges, nonwovens industry stakeholders continue to believe in India as a future market, (see charts at right). Not only does the country have a strong tradition in textile manufacturing (which has been blighted by migration to China), it has plenty of raw materials to feed nonwovens expansion. Reliant Industries, one of—if not the—world’s largest fiber producer, is located in India.

Working hard for India’s future is Samir Gupta, managing director of BCH, an agency dedicated to boosting India’s technical textiles market, which is set to grow from $4 billion to $8 billion by 2008. Mr. Gupta’s agency held a conference dedicated to medical and hygiene disposable product segments in India last spring and later this year will sponsor, along with EDANA, two advanced training courses—one on nonwovens in general and another on absorbent products.

“There is a lot of interest when it comes to nonwovens because it is one industry that has been growing steadily in the West,” he said. “There has been a lot of replacement of woven products and this industry is an opportunity for them because it is brand new to the market.”

Recently, Ginni Filaments, a major textile producer in India, began making spunlaced nonwovens for the wipes and medical markets. This company plans to forward integrate into disposable wipe and medical item production, according to industry sources.

And, other newcomers are expected to follow suit. While the production of the market is currently only about 50,000 tons, if India is like China, growing from 70,000 tons to 500,000 tons between 1989 and 2005, tremendous growth could occur in India.

“Because of the increasing awareness for health and hygiene among the expanding middle class and significant proportion of females and babies to the total population, it is the right time for Indian players to invest in this segment as this industry has only 1% market penetration here.” said Mr. Gupta.

LATIN AMERICA

Latin America returns to growth mode; nonwovens industry respond with increased investment

Continuing its recovery from a period of slow growth, the nonwovens industry in Latin America continues to grow, buoyed by foreign and domestic investment alike. The market is currently growing 8-10%, slightly ahead of the global average.

Currently South America produces about 206,000 metric tons, Mexico produces about 98,000 metric tons, and the Caribbean produces about 9000 metric tons, for regional production of 313,000 metric tons, according to INDA estimates. And, these figures are growing. From a local perspective, Brazil’s Companhia Providencia is in the process of adding its ninth production line, which will boost its capacity beyond 60,000 tons and Fitesa, also based in Brazil, continues to invest in its hygienic disposable nonwovens capacities.

Meanwhile, foreign investment continues in the region, led largely by PGI Nonwovens, which has already a sizable spunmelt operation from its plants in Colombia, Argentina and Mexico. After expanding production in Colombia and Mexico during the past two to three years, PGI announced this spring it would install a state-of-the-art spunbond line to more than double capacity of its DNS joint venture facility near Buenos Aires, Argentina. The decision was driven by continued growth in the Mercosur trading region, which is fed by customer demand for spunmelt hygiene products. The new wide-width, multi-beam line will feature the latest spunbond technology available in the market and will be capable of producing in excess of 15,000 metric tons per year. The company expects to begin installation of the new line in the second half of 2006, with commercial production planned for late 2007.

PGI’s DNS venture has been operating in Buenos Aires since 1997. The company began operations with the installation of a multi-beam spunmelt line serving the hygiene and industrial markets of the Mercosur region and added an extrusion line in 2003 to increase the company's fully integrated production capabilities.

Within Latin America, a handful of countries are responsible for close to 90% of all production. Argentina, Brazil, Chile, Colombia, Mexico and Venezuela are the bulge bracket players. Among these, Brazilian production alone will amount to about 105,000 metric tons this year, followed by Mexico at 98,000 metric tons, Argentina at 27,000 metric tons, Colombia and Venezuela each at about 20,000 metric tons and Chile at 12,000 metric tons, Mr. Butler projects.

Unlike the U.S. and other industrialized countries' consumption patterns where two-thirds of all nonwovens consumed are disposable, in Latin America, durable nonwovens represent almost two-thirds of all nonwovens consumed. Expectations are that disposable consumption in Latin America will grow with net disposable income—particularly in the absorbent hygiene segment. But Latin American consumers cannot afford higher-priced nonwovens, another executive says. “Per capita consumption is rising, but distribution of wealth is much more of a problem in this region,” said Wagner Souto Carvalho, the president of ABINT, and the commercial director of Providencia, one of Brazil's largest nonwovens producers.

 With about half the population in the region, Brazil leads other Latin American countries in production and consumption. INDA projects that Brazil will have increased its value share of South American consumption from 58% in 2002 to 61% in 2007, as the market grows from $583 million to $772 million over the same time period.

Brazil’s gross domestic product is expected to grow by 5% this year, following the 0.2% retraction in 2003, the UBS team projects. With a GDP worth $558 billion, per capita income in Brazil is expected to reach $3134 this year, below the regional average, and to continue rising to $3320 in 2005, UBS figures suggest.

At 0.68 kilograms of consumption per capita, Brazil consumes more nonwovens than other South American countries, which consume 0.40 kilograms, said Mr. Saito. Part of the explanation is that over the past decade, the economy of Brazil has improved the lifestyle of many poor, who have joined the ranks of the consumer class. Another factor is the cost competitiveness of the Brazilian nonwovens industry, which has world-class spunlaced and spunbond technology, he says.

In addition to Companhia Providencia and Fitesa, other leading local nonwoven producers include Bidim and BP. These and other producers spent the earlier part of this decade installing new capacity, which is now contributing to growth.

Mexico has the largest economy in Latin America and its consumption of nonwovens in Mexico was forecast two years ago by INDA to rise from 97,000 metric tons to 140,000 metric tons by 2007, with converted consumer nonwovens sales increasing from $1.9 billion to $2.4 billion.

Leading producers in Mexico include Fibras, Mexicana de No Tejidos, Milyon, PGI, Polimeros y Derivados and Tecnavan.

The Argentine market for nonwovens is rapidly recovering from the four-year recession that ended in 2002 with a 10.9% shrinkage in the economy.With 27,000 metric tons of production, Argentina is the third largest producer in Latin America. Argentina is expected to consume 13%, or about $100 million worth of South America's total consumption in 2007, INDA projects.

While Argentina's consumers are among the region's more sophisticated, boding well for disposables, substantial industrial capacity has eroded over the past decade, with automotive and other production moving to Brazil and elsewhere, suggesting that durable consumption will not rise as rapidly.

Major producers include Softbond and Dominion Sudamericana, PGI’s majority-owned subsidiary.

Political difficulties in Colombia and Venezuela have affected the rate of recovery of the nonwovens industry. Colombia's oil resources are helping it grow, inflation is headed down out of the double-digit range, and retail sales were up 6% at mid-year. Still, the peso is under pressure from stronger currencies like the dollar, and unemployment is over 50%.

One recent vote of confidence in Colombia was PGI's large investment in its spunbond fabrics capacity in Cali. The company installed a Reifenhauser Reico IV spunbond line, which started in early 2005. Another Colombian nonwoven manufacturer, Fabricato Tejicondor, has announced plans to upgrade its Fibratolima unit, under company president Luis Mariano Sanin. However, high energy costs are one limit to growth cited by Fabricato.

Produsa, a manufacturer of feminine hygiene products, entered the U.S. market through an expansion of its factory in Sabaneta in January 2005. The company will market its products through Puerto Rico, and has plans to expand exports to Mexico, Brazil and Europe.

Chile, which was the first major Latin American country to introduce modern economic reforms, is continuing to grow as a market, with low inflation, a strong peso and increased imports and exports. Exports were up 50% at the end of September, while imports were up 40%.

EASTERN EUROPE

Eastern and Central European countries, now members of the EU, enjoy their new status in the global marketplace.

Eastern European countries’ entry into the European Union—coupled with rising incomes in many of these countries as well as the region’s proximity to Western Europe—has created quite a buzz around this area. As many industries, particularly the automotives segment, have invested heavily in the segment, the nonwovens industry is no exception. Just last month, spunmelt producer Avgol Nonwoven Industries, which is based in Israel and has manufacturing operations in the U.S. and China, said it would build a facility in an undisclosed Eastern European location to serve emerging markets in Eastern Europe, Russia, the Ukraine and other Central and Eastern European countries.

Eastern and Central European countries have welcomed their role as  part of a larger global community; some see this move as a great opportunity to boost manufacturing and expose the region to the world. However, there are some who fear that much will be sacrificed with this move as local producers won’t be able to compete with multinationals that will more easily be able to sell their products in Eastern Europe.

While still behind its neighboring countries in Western Europe, the economies of Eastern Europe, which include Czech Republic, Slovakia, Poland and the countries of the former Soviet Union, have been growing rapidly since the fall of the Soviet Union and communism in 1989. This growth is creating a world region that is physically, politically and socially an important market in its own right. With above-average gross domestic products, a highly skilled workforce and low salary levels, the countries that comprise Eastern Europe are becoming important growth areas for many companies. Estimates put the population of the 10 Eastern countries new to the EU this year at 75 million, making it  an important market for consumer product companies looking for underdeveloped regions.

Companies are going to have to act fast, however, if they want to tap into this growing market because it’s growing fast. Between 1997 and 2002, diaper  sales increased 47% and disposable wipes sales nearly doubled as well.

Leading the way in developing the nonwovens industry here is the area’s largest producers, Pegas Nonwovens. Last year, the Czech-based spunmelt producer reported that sales reached €100 million, thanks to the addition of a seventh spunbond production line, capable of producing 15,000-17,000 tons of material annually, on stream. Output on this line, like Pegas’ older lines, targets hygiene markets both in Central/Eastern and Western Europe, and Pegas has already announced its intent to build an eighth line, based on Reicofil 4 technology. Representing a reported €40 million investment, this new line will target hygiene applications as well as technical markets when it comes onstream next year.

Also in the headlines in 2005 was Pegas' purchase by a U.K.-based private equity fund, Pamplona Capital Partners, in December—proof that investors from around the world are looking at this region for growth. The association with a U.K.-based, English-speaking owner has also broadened Pegas' appeal throughout Europe, according to technical director F. Rezak.

“Now we are able to serve markets throughout Europe,” he said. “And, we are even selling some specialty products beyond Europe. Pegas has the advantage of having some very modern technology and I think this will bring us some new territory in the future.”

On the end user side of the business, a crowded field of absorbent product manufacturers exists in Eastern Europe with small, regional players capturing some marketshare in most most countries. However, large multinationals such as U.S.-based Kimberly-Clark and Procter & Gamble and their European counterparts, Hartmann AG, SCA Hygiene and Ontex, are working hard to gain marketshare in the regions. Especially with the region’s new EU status, these markets provide companies with a chance for increased sales not seen in other world regions.

Local producers, such as Tzmo, Torun, Poland, Tosama, Domzale, Slovakia, and EuroCristal, Warsaw, Poland, have a difficult task ahead of them. Even though they enjoy first-hand market knowledge and awareness of consumers, competition for shelf space can be brutal. Like the U.S. and Western Europe, the Eastern European retail market is largely dominated by a few large mass market chains who prefer the high volume distribution capabilities of the larger companies. Even though Eastern Europe has come a long way since the Berlin Wall fell in the late 1980s, social and political prejudices still exist, and consumers in one Eastern European country might be against buying products made in another Eastern European country. The Made in the U.S.A. label goes a long way in these markets as most consumers associate sophistication with goods manufactured in the Western world.

And, while Pegas, as a local producer, is certainly impacting the nonwovens industry in this region, there is plenty of outside investment contributing to growth. Take Fibertex, for instance. Two years ago, the Danish company purchased Vigona, a Czech producer of needlepunched and thermal bonded nonwovens. Fibertex executives say the move not only broadens its business into Central and Eastern Europe but also increases its exposure into key markets including the automotives industry.

Not long after acquiring Vigona, Fibertex enhanced this business through the construction of a large, state-of-the-art needlepunch line at the site. And, executives have indicated the company has plans to invest much more in this business.

Meanwhile, Johns Manville, a roofing and construction specialist, has its eye on the burgeoning roofing business of this region. While the Denver, CO-based company serves this region from its facilities in Germany, for now, executives are looking to establish a nonwovens operation there in the short term. Such a move would complement JM’s Skloplast site, a Slovakian fiberglass manufacturer, which was acquired in 2001.

Likewise, roofing company Freudenberg Politex has established a new site for the production of nonwovens in the region of Nizhniy Novgorod in Russia last year. The new plant has a capacity of 8000 tons per year of polyester staple nonwovens that will mainly cover the demands of the Russian market, where Freudenberg Politex has been already operating for more than 10 years. In the first stage, the company will employ a total of 40 employees.

These companies and others like them are recognizing just how important Eastern/Central Europe’s role—with its highly skilled, low-cost labor base as well as a consumer population with a growing thirst for Western goods—will be in the future. And, as time goes by—as the Iron Curtain fades into distant memory—it will not be surprising if all of Europe melds into one, creating the world’s largest consumer market, by far.