Boosting Volumes

Source from:  tobaccojournal.com 11/24/2006

03 Nov 2006. Developments in the sector of acetate tow look bright. While in 1999 world production of acetate tow stood at 557,125 tonnes, it climbed to over 661,000 tonnes in 2005. As the world-wide demand for acetate tow is expected to increase by around 3 per cent per year, almost all suppliers are expanding their production. Growth is mainly being triggered by rising demand in China, where it is expected to increase from 191,300 tonnes in 2004 to 227,200 tonnes in 2010. Another important growth market is the CIS countries, where requirements are forecast to rise from 51,500 tonnes in 2004 to 65,500 tonnes in 2010. The Middle East also represents a respectable growth market. Demand is anticipated to rise from 25,000 tonnes in 2004 to 26,800 tonnes in 2010. Expectations are high. Acetate filtered cigarettes currently account for 91.6 per cent of the world's total cigarette production. For 2010 Germany-based acetate tow supplier Rhodia expects the share to increase further to 98.2 per cent. Against this background it is not surprising that almost all manufacturers have started significant expansion programmes. US-based Eastman Chemical Company, for example, on 11 September 2006 announced plans to expand production of its Estron acetate tow at its facility in Workington, United Kingdom. According to the company, the expansion responds to the growing demand in the ten new EU member states in eastern Europe. The production expansion, amounting to round 9,000 tonnes, will increase annual capacity at the Workington facility from 15,000 tonnes to 24,000 tonnes. When the expansion is completed during the first half of 2008, Eastman's total world-wide capacity for acetate tow will exceed 180,000 tonnes. Eastman is also adding capacity in the Asia Pacific region, where the company plans the construction of a new 25,000 to 30,000 tonnes per year acetate tow plant, with a target date of 2009. It is not yet known just where the plant will be located. Take-over agreement Germany-based chemicals group Celanese, which was taken-over by US investment group Blackstone in 2004, expanded its production volume through an acquisition. On 29 August 2006 the company announced that it had signed an agreement to purchase the business of Acetate Products Limited (APL), the cellulose acetate flake, tow and film activities of Dutch-based company Corsadi. Through its subsidiary Acordis the company supplies cellulose acetate filter tow to major tobacco companies throughout the world. With around 750 employees and sales revenue of about US$ 230 million in 2005, APL operates two manufacturing facilities in the United Kingdom that produce acetate flake, tow and film. Apart from cigarette filters, the company's acetate products are also used in a range of applications in the textile and packaging industries. The transaction is subject to regulatory approvals and other customary conditions. Details of the purchase agreement were not disclosed. Capacity expansions have also been conducted at the company's China ventures. Celanese holds a 30 per cent ownership interest in three separate acetate production ventures in China (Kunming, Nantong, Zhuhai). In each instance China National Tobacco Corporation (CNTC) controls the remainder. In combination, these ventures reportedly represent the market leader in Chinese domestic acetate production. Acetate products account for 14 per cent of the company's total turnover. In the second quarter of 2006 net sales increased by US$ 4 million to US$ 176 million compared to the same period last year. Operating profit increased by US$ 19 million to US$ 29 million. According to the company, increased earnings reflect restructuring benefits, as well as higher dividends from the company's China ventures resulting from the completion of the tow capacity expansions. As part of the strategic realignment of the segment, the company exited the acetate filament business in mid 2005 and consolidated acetate flake and tow manufacturing at three sites in the US, Mexico and Europe. The process is planned to be finalised by early 2007. With this realignment, the company aims to increase efficiency, reduce overcapacities in certain manufacturing areas and focus on products and applications that provide long-term value. Expanding Chinese production Another company which has responded to the striking growth exhibited by the Chinese market is Japanese-based Daicel Chemical Industries. The company has increased production capacity at its Chinese plant in Xi'an, Shaanxi province. Annual capacity of Xi'an Huida Chemical Industries was boosted from 8,000 tonnes to 24,000 tonnes by September 2006. With the establishment of Ningbo Da-An Chemical Industries in March 2005 for sales of cellulose acetate and acetic anhydride, the company also advanced its business development endeavours in China. Ningbo is located at the middle part of China's coastline and south flank of the Yangtze river delta, bordering on Shanghai and Hangzhou. In its home market, Japan, where the volume and sales amount of acetate tow for cigarette filters also is increasing, Daicel announced plans to relocate its acetate tow production from its Sakai facility to its plant in Ohtake, Hiroshima prefecture, as an opportunity to increase production capacity. According to the company, production is to commence at the Ohtake plant from the latter half of 2007. Rhodia, the world's number three acetate tow supplier with 19 per cent market share, also extended its production. In 2005 the company pressed ahead with the expansion of its Russian plant located in Serpukhov where the initial capacity was increased from 3,000 tonnes to 19,000 tonnes. Apart from its Russian plant, Rhodia sustains five other locations world-wide, in Germany (Freiburg), the USA (Kingsport), France (Roussillon), Brazil (Santo André) and Venezuela (Valencia). Future goals Rhodia has set on its agenda are new filtration concepts, including additives. According to the company, the use of porous adsorbents for the filtration of cigarette smoke volatiles is becoming increasingly interesting, especially in the context of the development of PREPs. For this reason the company launched a cross-fertilisation project in 2005 within the Rhodia group to check the feasibility of silica as an adsorbent in cigarette filters. In 2006 the company also officially launched Towcube, its vacuum packaging. Filtrona, the only significant filter supplier in the international market, stated that for the six months ended 30 June 2006 the company's cigarette filter business continued to encounter difficult conditions with a mixed performance across its manufacturing facilities. Overall volumes were up by 0.3 per cent with an encouraging 17.7 per cent increase in special filters, offset as expected by a 19.3 per cent decline in mono-acetate filters. In total, however, Filtrona has continued to perform well with revenues of £ 282.9 million (2005: £ 251.9 million) up 12.3 per cent. Operating profit before intangible amortisation was £ 32.4 million (2005: £ 30.0 million) up 8 per cent. Profit before tax was £ 28.9 million (2005: £ 26.3million) up 9.9 per cent. The facility at Monterrey, Mexico, which was opened in September 2004, has continued to incur higher than anticipated costs to achieve the appropriate levels of quality and productivity, resulting in losses in the period. The Mexican facility produces standard filter rods, as well as activated carbon dual filters and a number of other special filters from Filtrona's range. Initial capacity was 10 billion saleable filters. According to the company, conditions on the North American market have changed fundamentally after an important customer decided to transfer significant volumes of cigarette manufacturing out of that region. Forthcoming volume reductions are currently under review. A decision reportedly is expected for 2007. Good news came from Indonesia, where the relocation of its Surabaya factory to larger premises was successfully completed in 2005. The new factory, with 8,000 square metres, is almost double the size of the original factory, which was also based in Surabaya. The new site, which is equipped to respond to the increase in demand for activated carbon filters in the region, already has 22 commissioned machines and has the potential to house 40 machines, compared to just 16 in the original factory. According to the company's management, the wheels are now starting to accelerate in terms of activity evaluating acquisition prospects. During the past years the company registered 5 per cent in organic growth and 6 per cent through acquisitions. Both figures are cited to be a sensible benchmark for the future. In the past years Filtrona had done significant investment in the tobacco sector acquiring tear-tape manufacturer Payne, American Filtrona and Swiss-based filter manufacturer Baumgartner Fibertec. The latter acquisition, however, was closed in 2005 as a result of the overall volume weakness in Europe. Nevertheless Fibertec's cavity filter technology, Cavitec, reportedly was a great benefit to Filtrona's product portfolio, especially in the development of PREP type products, by facilitating the use of a variety of filter additives. In Russia, Filtrona has changed its plans to open a new facility due to the excessive costs of set-up in that country. The company, however, claims to remain committed to a site in eastern Europe in order to improve its competitive position. So far, a possible alternative has not been disclosed. Looking at current developments on the filter market, its perspectives apparently remain good. Increasing demand in the East and the expected introduction of PREP products in the West will further spur sales. Filter tow manufacturers, however, are faced with increasing costs for their major raw materials and energy, which in turn will continue to have a negative impact on profits. As this is not expected to change in the future, suppliers are forced to further adjust product prices. Yet the leeway to pass them on to customers has become extremely small. Increasing efficiencies, after all, will remain a major task. Emily Paersch Correction In its latest issue (TJI 5/2006) TJI incorrectly stated that Filtrona was expecting to launch a new PREP product on the US market in late 2006 or early 2007. TJI regrets any confusion caused by the information in its article. Enditem