ARNHEM, Netherlands—Diolen Industrial Fibers B.V. is expanding capacity for polyester tire yarn at plants in the Netherlands and Brazil as part of a strategy to rebuild the business.
Diolen—the polyester fiber business of Accordis Industrial Fibers B.V.—will triple capacity for polyester tire yarn at its Emmen, Netherlands, factory over the coming six to 12 months and is in the process of expanding capacity at the CamaÃ§ari, Brazil, plant of its Cobafi (Companhia Bahiana de Fibras) subsidiary by more than a third.
The projects tie in to a recovery strategy crafted by Jan Michiels, a business turnaround specialist who joined the firm as CEO in early 2004.
Diolen is shifting focus to market areas where it—and its European customers—can compete with Far East imports, while reducing its own cost base, Michiels said. "But if we try to defend ourselves on cost there is no way we will be successful."
In the future, the firm will compete on improved technologies, product performance, reliability, responsiveness and customer support, said Michiels, who has spent most of his career in the chemicals and fibers industries.
The Dutch firm aims to benefit from growth in the European market for high-tenacity polyester yarn, said Michiels, who estimates annual market size at about 55,000 metric tons for tire cord and 120,000 tons for yarn.
Diolen´s figures show European demand for tire cord set to grow by 5 percent a year through 2007, driven mainly by continued substitution of rayon, compared with 3 percent a year for technical yarn.
Diolen claims to have 20 percent of the polyester tire yarn market in Europe and 25 percent of the market for polyester technical yarn used in the reinforcement of non-tire rubber goods.
Western European suppliers have around 70 percent of the polyester technical yarn market in Europe, with Asian producers, including Belarus, nearing a 20-percent share, according to Diolen.
By contrast, Asian imports have only a relatively small part of the polyester tire cord market. The region still is dominated by Western European suppliers with a 60-percent share and central European suppliers, including Turkey, with 30 percent.
However, the global tire yarn market has 20-percent surplus capacity, including 35 percent in Asia, 15 percent in Europe and 10 percent in North America, said Nic Hendriks, Diolen´s chief commercial officer. This surplus is likely to grow from expansion in China over the next three years, posing a major threat to Western producers, he said.
The technical yarn market has 25-percent overcapacity worldwide, with Asian capacity at double local regional demand, compared to a slight regional undercapacity in Europe and North America, Hendriks also noted.
In addition, Diolen officials presented data showing how lower labor costs have enabled Asian firms to supply high-tenacity polyester yarn between 4 and 8 percent cheaper than equivalent European-made yarn, and a finished tire at 10-percent lower cost.
"We are identifying, based on those structures, where we are valuable vs. Chinese imports and where we are not. We have to identify these for our customers," said Michiels. "A war on price alone cannot be won but (we must) strive toward the lowest cost base. As long as the price gap (with Asian imports is in the same) ballpark we will survive."
Diolen´s CEO believes the recovery strategy will pay off within three years but he acknowledges the scale of the challenge. "The entire (European) supply chain from materials suppliers and processors to end-users have to join forces in this struggle. We have to stay competitive as a joint industry pipeline," he said.