Management Report

General Market Environment

General Market Environment

Global economy1

The global economy proved to be weaker in 2012 than originally expected at the beginning of the year. The most recent forecast of the International Monetary Fund (IMF) predicts average global economic growth of 3.2% for the year under review, compared to 3.9% for 2011. Developments in Europe during the entire reporting year were overshadowed by the sovereign debt crisis, which resulted in budgetary consolidation and cost-cutting programs, especially in the European peripheral states. In turn, this had a dampening effect on economic growth. Domestic demand in the developing and emerging economies was also not sufficient to compensate for the downturn in demand from Europe.

The IMF predicted GDP growth of only 1.3% for the Western industrialized nations in 2012 (2011: 1.6%). Whereas the economies of the eurozone countries contracted by 0.4% in 2012, GDP in the USA expanded by 2.3%. The IMF forecasts expect economic growth to reach a level of 5.1% in the developing and emerging countries in the year 2012 (2011: 6.3%).

The IMF anticipates average global economic growth to amount to 3.5% in 2013. In contrast, GDP is anticipated to expand by 1.4% in the Western industrialized markets. The eurozone will remain the biggest problem area, with its economies expected to contract by 0.2% once again in 2013. The IMF predicts a stable development in the USA, featuring a GDP growth rate of 2.0% in 2013. The developing and emerging markets are expected to expand at a rate of 5.5% in 2013, thus continuing to serve as the growth driver of the world economy. According to the IMF forecasts, China and India will once again provide the biggest impetus to the global economy, boasting GDP growth rates of between 7% and 8%.

Global fiber market

Only slight growth in world fiber production

Against the backdrop of the highly dynamic development of fiber production volumes over the last two years, growth in world fiber production in the 2012 financial year was considerably dampened by the ongoing weak economic climate.

Initial estimates2 conclude that the rise in world fiber production only amounted to 1.2% during the reporting year, with total volume up only slightly from 81.0 mn tons to 82.0 mn tons. This was in contrast to the 6.4% increase generated in 2011. The slight growth rate only took place in the emerging markets. However, the stagnating economies of the Western industrialized markets strongly dampened textile imports from Asia. As a result, Chinese textile and clothing exports in 2012 were up by only 2.8% to USD 254 bn, a much more moderate rate than in previous years3 characterized by double-digit growth rates. In contrast to past years, the domestic markets in Asia could not compensate for declining export demand. On balance, this resulted in a very weak market situation in 2012 for the entire textile industry.

Cotton production fell by only about 4.8%, from 27.3 mn tons in the previous year to 26.0 mn tons in 2012. Accordingly, cotton production in 2012 corresponded to the comparable volumes of the years 2006 and 2007. Initially, the total cotton harvest was expected to be considerably lower in 2012. In addition, the cotton selling price declined significantly again starting in the second quarter of 2012 following the record cotton prices reached during the 2011 calendar year. As a consequence the development of cotton prices has detached itself from the current price cycle of agricultural commodities.

On the other hand, cotton production in 2012 once again exceeded consumption, which in turn led to a further increase in cotton inventories. Experts estimate that cotton stocks will rise to a new record level of 16.7 mn tons after the end of the current 2012/13 cotton harvest, corresponding to a stock-to-use ratio* of 71%. According to market experts, the lion’s share of the high cotton inventories is located in China.

As in previous years, wool production stagnated at an annual production volume estimated at about one million tons.

Significant rise in chemical fiber production

In spite of the restrained demand for fibers, global chemical fiber production rose once again in 2012. According to preliminary figures, it showed an increase of 4.4% to the new record production level of 54.9 mn tons, up from the prior-year figure of 52.6 mn tons. The synthetic fiber polyester, which posted growth of 4.1% in 2012, accounted for some three quarters of total chemical fiber production. The production of polyamide fibers also increased strongly by 3.8%. In contrast, the production of polypropylene stagnated and acrylic fibers were down 4.0%.

China, which manufactured close to two-thirds of all chemical fibers produced worldwide in 2012 (annual production: 35.5 mn tons), generated the biggest rise, with production up 7.6%. Chemical fiber production volumes also increased in Indonesia, the USA and Korea, in contrast to decreases reported in Taiwan, Japan and Western Europe.

Disproportionately high growth of man-made cellulose fibers

The production of man-made cellulose fibers expanded at a considerably higher rate than the global fiber market as a whole, and was disproportionately higher than the global chemical fiber industry. A new record production level of about 5 mn tons was achieved, comprising a growth rate of 6.8% from the previous year. This included 3.66 mn tons of cellulose staple fibers, a rise of 9.2% in a year-on-year comparison. New production capacities were put into operation in 2012, especially in China and Indonesia.

Falling fiber prices

The cotton price, the benchmark for the entire fiber industry, was characterized by a clear downward trend starting in the middle of 2012. The Cotton A Index started the 2012 financial year at 96.7 US cents per pound. Starting in the middle of the year, the price oscillated between US 80-85 cents per pound, and ended the year at US 83.0 cents per pound, corresponding to a drop of about 14%. The average cotton selling price of US 88.9 cents per pound was more than 40% below the prior-year level. In spite of the high cotton inventories, the average selling price for cotton in 2012 was still substantially above the all-time lows of past years, which can be attributed to a long-term structural change affecting the cotton price. A slight upward movement in prices was perceptible at the turn of the year 2013.

The Chinese government pursued a rigid protection policy in 2012 for the benefit of China’s cotton production, and set selling prices at a level more than 25% higher than world market prices. In addition, China massively expanded its cotton inventories in 2012.

The considerably lower world market prices for cotton put downward pressure on all other fibers. The price for polyester staple fibers hovered at a low level throughout the entire year, and declined to 140 US cents per kilogram in June 2012, its lowest selling price for the year.

Viscose fiber prices followed the trend

Viscose staple fiber prices followed the price trend prevailing for all other fibers, but with a certain time delay. At the beginning of 2012, standard viscose staple fibers were quoted at a considerably higher level on the spot market in China, the world’s largest fiber market, and declined by about 15% by the end of the year. The turn of the year 2012/13 witnessed a consolidation of the downward movement in Chinese spot market prices for viscose fibers.

Starting in the second half of 2012, viscose fibers were once again partially able to maintain their longstanding price premium of 10-15% above the corresponding cotton prices.

The significantly lower viscose fiber prices compared to the previous year against the backdrop of raw material prices which declined to a lesser extent resulted in production cutbacks and capacity under-utilization afflicting a series of Asian manufacturers. A competitor in Southern Europe completely terminated production at the turn of the year.

1) IMF, World Economic Outlook Update, January 23, 2013
2) Source: Lenzing Market Intelligence
3) Source: CCFEI
*) This measured value descibes the ratio of goods on stock to actual consumption.