Lenzing AG

Chemicals
Hold; PT: EUR120.00

Lenzing was represented at our conference by Stephanie Kniep, head of IR, and Dr Harald Fuchs, vice president of global accounting and tax. A positive tone on the business development for speciality fibres was to an extent offset by uncertainty on above-demand additions to global viscose capacity likely in 2018. The company also devoted some time to explaining the timeframe of investment decisions next year.

Growth in speciality fibres continues: The company remains convinced of its ability to lift the proportion of sales from higher-margin speciality fibres from 41% currently to 50% by 2025. Part of this will come from growth provided by a 25kt Tencel de-bottleneck due to come online in Q2 2018, with much of the remainder provided by the new 90kt pa Tencel plant in the US from H1 2019.

Premia for speciality fibres: Lenzing also indicated that enhanced viscose fibres such as EcoVero may be achieving substantial (we believe double-digit percentage) premia relative to commodity viscose pricing. The company also stated that sporadic decreases in viscose prices over the past few months had not been accompanied by decreases in the prices for its speciality fibres, although the future development of speciality premia is difficult to comment on at this stage.

Capacity growth in viscose will be above demand in 2018: Lenzing believes that the global viscose market, which currently has capacity of just under 6m tonnes, will experience capacity increases of 600- 900kt next year (c10-15%), while demand grows by 5-6% pa. The first major capacity addition will be a 160,000-tonne plant built by Chinese competitor Sateri at the start of the year, with others such as Aoyang and Tangshan also currently constructing plants. The exact amount of additional capacity for 2018 is uncertain as some Chinese companies appear to be delaying environmental permitting until late in the construction process, and the potential supply response to lower viscose prices is unknown.