The nonwoven industry begins 2020 facing a variety of opportunities and challenges. Rising capacity, brought about by the installation of new highly advanced technology, will enter the market during 2020- - 2021 against a backdrop of slowing economic growth in many global regions. While an economic slowdown was expected to occur after an extended period of growth, it was further fueled by trade tensions and tariffs between the U.S. and China. This, in combination with low birthrates and now health care concerns over the Coronavirus, place further pressure on utilization of capacity entering the market. Moreover, the business is faced with challenges to adopt sustainable raw materials in advance of looming governmental regulations.
Still, the spunlaid polypropylene nonwoven business has made great strides in developing new, more highly productive and reliable manufacturing technology and a variety of product innovations attractive to end use consumers. Producers of this technology around the world continue to install the most modern generation of technology to gain product and productivity benefits, notwithstanding the impact that these large increments of new capacity have on market capacity utilization.
Oversupply exists in most global regions. With some exceptions, producer profitability is below expectations and largely driven by the high cost of manufacture associated with lower than expected capacity utilization.
At present, Gulsan and General Tekstil (Turkey), Berry Global (China), Fitesa/CNC (Thailand) and Baftineh (Iran) have acquired, and in some cases installed, the newest full-scale versions of Reifenhauser 5 technology. PF Nonwovens (CZ Republic) commissioned a Reicofil 5 Compact semi commercial line in 2019. Both Berry Global (China) and Gulsan (Turkey) commissioned their Reicofil 5 machines in 2019.
In addition, previously announced capacity additions will be installed through 2020 using Reicofil 4 S technology ordered just prior to the introduction of Reicofil 5. These installations include Toray lines in China and India wherein capacity will be fully realized in 2020 and 2021. Another R4 line is expected to be commissioned in India in 2020 as well, which will have an annual capacity of 20 k tonnes.
We expect the pace of new capacity investment will slow after 2021 until new capacity is absorbed. This expectation could be impacted by the decommissioning of earlier generation capacity. We also expect that upgrades to existing capacity may occur to enhance the capability of existing machines.
- In North America, oversupply exists. We do not expect new capacity installations to occur until 2022 or later. 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. Demand for spunlaid polypropylene nonwovens in construction, medical and technical speciality markets is expected to continue to be attractive pending stable macroeconomic and health conditions.
- In South America, we do not expect any new capacity to be installed pending further economic improvement in key regional markets and higher utilization of existing capacity. Demand for disposable hygiene and in other nonwoven markets is still recovering from a severe economic downturn which occurred during 2015 – 2016. Adult incontinence products hold a strong future growth potential when the region’s economic trends improve. While a recovery is underway, nonwoven capacity utilization is still 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 k tonnes of new capacity entered the market during 2018 - 2020. This includes a 35 k tonne Gulsan R5 line in Turkey which became fully commercial in 2020 and new capacity installed by PF Nonwovens (CK Republic) Union (Poland) and Fitesa (Germany. These installations followed a period of significant new capacity additions in Greater Europe which overran demand growth in both regional and export markets creating oversupply which still exists. The new R5 technology to be commissioned by General Tekstil in 2020, will add to oversupply in Greater Europe.
- In the Middle East and North Africa, demand remains well below capacity following a period of significant capacity expansion. Capacity utilization is beginning to improve but is not fully utilized nor is expected to be so for some time. Still, selected producers in the Middle East are keen to install new generation technology and target export markets for new output. We do not include Iran in our analysis of the MENA region. The installation of advanced technology by Baftineh in Iran will modernize the company’s technology platform and add product capabilities to its portfolio.
- In South Africa, previously announced new capacity installations by PF Nonwovens and Spunchem will be fully realized in 2020. We do not expect any additional capacity installations in the near term.
- In Southern Asia, there was 24 k tonnes of new capacity commissioned in India during 2018-2019. Another 38 k tonnes is expected to be installed 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 k tonnes of new capacity was commissioned during 2018 - 2019. Fitesa/CNC will commission a new R5 machine in Thailand in 2021 which will have a capacity of 30 k tonnes. Asahi (Thailand) will also commission a new 15 k tonne line in the same year. Demand is growing but slowing as compared to prior periods. We expect further capacity announcements in the region which may not occur until after 2023.
- In China, 76 k tonnes of new capacity was or will be fully realized during 2018 - 2019 and another 50 k tonnes 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.
At present, we expect average annual global demand growth in tonnes from 2020 - 2025 to be around 5% annually. This forecast is likely to negatively impacted by now trending macroeconomic factors and the Coronavirus. 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, we expect capacity growth will slow after 2021 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 in 2020 - 2021. At present, economic conditions in 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 2025 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.
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.