Regional Report: Latin America

The estimated 6% growth of nonwovens demand in Latin America will be more than double the growth of the gross domestic products (GDP) of the main economies comprising the region. These economies expanded 2.6% in 2013 and are expected to expand by 3.2% in 2014. With South American nonwovens production estimated at 300,000 metric tons, and Mexico and the Caribbean nations producing more than 100,000 metric tons, even a slight increase in traditional demand may spark the need for even greater investments. More non-traditional nonwovens consumption also is slated to rise, although disposables now represent the majority of the volume in the market. Nonetheless, Latin America now has the third fastest regional demand in the world for nonwovens, following only China and the Middle East.

“Our main goal in 2014 is to continue improving the product mix and seeking to raise the production of higher value-added products, which have better profitability,” says Gabriela Las Casas, the new business and investor relations manager for Companhia Providencia, in Sao Paulo, Brazil.

Latin America’s economic growth slowly accelerates

Consumer purchasing power is directly related to economic expansion, which is still recovering in key Latin American market countries. The 2014 economic growth is predicted to be 2.6% in Argentina and Brazil, 4% in Chile and Costa Rica, 3.5% in Guatemala, Mexico and Uruguay, 2.1% in the Caribbean, and 1% in Venezuela, according to the preliminary overview by the United Nation’s Economic Commission for Latin America and the Caribbean (Eclac), based in Santiago, Chile. Given that the economies of lead nonwoven producing nations of Brazil, Argentina and Mexico will trail the regional expansion pace, trade in cross-border nonwovens demand should rise within the region.

Domestic demand for all types of products is healthy and rising in the region, which will help nonwovens demand. According to Eclac, regional growth was driven primarily by robust domestic demand, in particular consumption, which added 2.8 percentage points to GDP growth, while investment contributed 0.9 percentage points. Net exports again contributed negatively to GDP growth (-0.8 percentage points), but less so than in previous years.

Per capita income across Latin America hit $9000 at the end of 2012, though in key countries, the income is higher. In Brazil, just over $11,300 was average per capita income in 2012, while in Mexico it was just over $9700. In 2013, per capita in Brazil was expected to reach $12,100 and by 2018, it is expected to hit $15,000, according to predictions by the International Monetary Fund.

Latin American nonwovens demand is poised to grow fastest in South America, with Brazil leading the pack and Uruguay showing the highest per capita income in the region. “From our recent report, we forecast 5.8% compound average growth rate in metric tons for the Latin America region and 6.1% compound average growth rate for South America,” says Brad Kalil, the director of market research and statistics at INDA, Association of the Nonwoven Fabrics Industry, based in Cary, NC. The report he refers to is INDA’s “Latin American Nonwoven Markets: Trends, Forecasts, and Analysis 2012-2017,” released in March 2013.

These rapid demand rates are translating into strong sales for the leading players in the region. Providencia, for example, reported in its third-quarter 2013 financials that profits were up 21% over the prior quarter, due to higher capacity utilization rates and accompanying higher sales levels.

Line investments help supply growing local demand

New capacity investments, especially in disposables, by the leading manufacturers—Providencia, Fitesa and PGI—will help drive demand for existing and new product lines in the region. In Argentina, PGI, for example, set up local financing in September to make a $3.5 million improvement to its Galicia facility, near Buenos Aires. In late 2012, Providencia brought a new $60 million plant online at Pouso Alegre, in Minas Gerais state, Brazil, keeping pace with the company’s new investments in Statesville, NC. Fitesa also recently opened a new $12.4 million facility at Gravatai, near Porto Alegre, in Rio Grande do Sul state, in Brazil.

“The new line at Gravatai is fully operational producing resin bonded and air through bonded nonwovens for both the domestic and export markets,” says Raymond Dunleavy, marketing, strategy, and business development director of Fitesa, in Simpsonville, SC.

Other nonwoven companies are beginning to focus attention on more non-traditional areas of Brazil, diversifying production from the Sao Paulo center. Rio Grande do Sul state is neighbor to Argentina, Paraguay and Uruguay, and is close to the traditional textile center in Santa Catarina. Similarly, new investments are cropping up in the Northeast area of Brazil, which is one of the fastest growing markets in the country in terms of demographics.

Domestic nonwoven investments also are rising, in part because of the old age of the first generation of lines installed. “Carded technology, which requires less capital investment, is usually the first to be commercially developed in emerging markets, but soon starts to be replaced by the spunlaid process, which is more effective,” Kalil says.

At this point, much of the spunlaid material consumed in Latin America is coming from China, Europe and the U.S., says industry consultant Rick Jezzi at A.D. Jezzi and Associates, LLC, based in Bala Cynwyd, PA, U.S. Jezzi is the author of the INDA report cited above.

Small- and medium-sized players in the market will increasingly be replaced by multinationals, suggests Jezzi. “There are a lot of mom-and-pop players in the market, some in the $50 million to $100 million range, who are not keeping up with new machine investments,” he says. “Many of them sell out or simply become obsolete.”

The evolution of investment is perhaps most advanced in Brazil, both the largest manufacturer and consumer of nonwovens in Latin America. “Data obtained from Brazil shows that there were approximately 70 companies manufacturing nonwovens with approximately 82 facilities averaging 1.2 plants per company in 2010. These companies have approximately 254 nonwoven production lines, with needlepunched lines accounting for 55% of them,” says Kalil. “Close to two-thirds of these companies were established over 20 years ago and nearly a quarter of the total have been around for more than 50 years. About 10% of the total number of companies were established in the last 10 years. The industry has a good foundation for continued, solid growth within the established manufacturers in the region.”

New technology investments also on the rise

Investments in new technology also are driving new product development in nonwovens in Latin America. In September, Fitesa, Braskem and NatureWorks formed a joint venture to develop new nonwoven products from plant-based materials including sugar cane, which is a primary ethanol fuel source in Brazil. The companies aim to produce “a sheath-core bicomponent configuration” material of which the sheath is made of Braskem’s “I’m Green” 100% bio-based polyethylene, and the core uses NatureWorks’ 100% bio-based Ingeo polylactide.

“The resultant nonwoven is extremely soft, due to the bio-PE outer sheath, yet remains strong and robust due to the Ingeo core,” says Dunleavy.

Fitesa will offer the fabric in a comprehensive range of basis weights with physical properties designed to allow drop-in replacement in existing bicomponent spunbond applications. “Market response to our 100% bio-based fabric has been terrific. We have already commercialized this product and additional customer trials and qualifications are underway,” says Dunleavy.

Braskem also has been working in partnership for several years with Novozymes to develop a 100% bio-based polypropylene from sugarcane. In 2010, Braskem announced plans to invest $100 million to build such a polypropylene plant in Brazil, when production was slated for late 2013 but construction was postponed because of slow economic growth, the company’s 2012 annual report indicated. Braskem is the largest thermoplastics producer in the Americas and the largest PP manufacturer in the U.S.

Increasing regional players in Latin America

The three largest players in the Latin American nonwoven market have become much more regional throughout the Americas, if not global players, over the past few years. Providencia has invested heavily in U.S. production in Statesville of late, seeking in part to provide domestic production for both the U.S and the Brazilian markets, the two largest in the Americas. Fitesa recently announced a new machine for its Peru operation, in Lima, which serves not only the geographically isolated Andes region but also can attend to trans-Pacific demand. Similarly Fitesa broke into the U.S. market in 2008 through its short-lived Fiberweb venture, which expanded its production network into Mexico before sale of that business to PGI in November. And PGI now has an Americas network that encompasses Mexico, Argentina and Colombia.

With multiple production facilities throughout the Americas, producers are following their customers closely, in terms of new plant sitings. “Multinational nonwoven producers can then meet the needs of multinational absorbent hygiene producers,” says Kalil. “The import-export activities of Latin America is minuscule outside of the Americas.”

Evidence of the more global approach of the nonwovens industry in Latin America came from the November workshop in Sao Paulo on “Sustainability in the value chain of nonwovens and technical textiles” that was jointly organized by the Associação Brasileira das Indústrias de Nãotecidos, or ABINT, the Brazilian technical textiles and nonwovens association, and by EDANA, the international association serving the nonwovens and related industries.

“Many EDANA member companies have expressed their interest in the developments underway in Latin American markets,” says Laerte Guião Maroni, ABINT’s director of communication, in Sao Paulo.

Segment growth points to opportunities

Given the substantial growth of the lower middle class in Latin America, it is not surprising that disposables lead other segments in growth. Indeed, spunmelt was the leading type of nonwoven in 2012, accounting for 52% of total demand in Brazil, according to one market analyst.

“The markets forecasted to grow the fastest in the outlook period 2012-2017 are some of the disposable markets including air and liquid filtration at 9.4%, absorbent hygiene at 8.4% and wipes at 7%,” says Kalil. “Within the durable markets the only market near the growth of the disposables is the automotive market, growing at a 7.6% compound average growth rate.”

In contrast, the high level of hard goods consumption in the U.S. and Canada drives the durables segment more in North America than in Latin America. “An interesting point of comparison between North America and South America is the share of disposables compared to durables, in tonnage. For 2012 in North America, disposables comprised 66% while durables were only 33%. In South America, it is the near opposite with durables comprising 62% and disposables 38% of the market,” says Kalil.

Nonetheless, other segments, like geotextiles and filtration, are expanding significantly in Latin America, driven by government and private spending on infrastructure and real estate construction. “Even though the hygiene market segment has more visibility as a result of its domination by a few global brand companies, much growth and activity is in other segments of the nonwoven markets,” Kalil says.

Finland’s Suominen is the only manufacturer of spunlace material in Brazil for wipes, but increasing use of the products for purposes other than baby hygiene will create new need for investments, suggests Jezzi. And thus far there is no airlaid capacity in the region, and very little meltblown capacity, he points out. “But sooner or later someone will bite the bullet on investing in local plants,” he says.

“Another opportunity resides in the vertical integration of a lot more of the existing conventional nonwovens capacity, moving into automotive and furnishings markets,” says Jezzi. “There are a lot of companies in needle punch now because it offers a low barrier from a capital standpoint, so this capacity is growing. Automotive, in particular, is big because Brazil is number four in the world in auto production, so sheeting will grow at a high rate.”