Too Much of a Good Thing? Spandex Capacity Stretches Limits of Demand

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April 2001 - Volume 16 I Number 2

Too Much of a Good Thing? Spandex Capacity Stretches Limits of Demand

By Hannah Miller, USA Editor

Consumers crave comfort.

Consumer demand for spandex is expansive and resilient, like the filament itself, but there is growing fear that overzealous producers are stretching capacity way out of shape.
Demand, while growing, has not been able to keep up with an unprecedented amount of new capacity, industry leaders say. Coupled with slower economic growth in the USA, oversupply is creating problems all along the value chain.
Spandex coverers are operating at about 70% of capacity, one observer estimated, and filament prices have fallen more than 10% on some deniers.
Consumers continue to pay for the extra stretch, support and shape retention that spandex provides. They’re buying it in nearly every kind of fabric item, including some that wouldn’t have been considered spandex territory a decade ago — everything from shoes to sheets and men’s suits.
Spandex consumption continues to grow about 10% a year, according to DuPont Lycra President Steve McCracken.
But producers may have been overly encouraged by market growth that Mr. McCracken says hit 20% in the late 1990s. Producers added lines and built new plants, apparently unaware that other fiber manufacturers worldwide were ramping up spandex output as well.
“The problem is, everybody did so much in secrecy, and suddenly all this capacity came on line,” said William Girrier, director of marketing for Globe Manufacturing, now part of Italy’s Radici Group.
“A lot of people were surprised. It dawned on us in late 1998,” he said. “We’re now in that period of realizing that surprise.”
Consultant Stan Dobson of UK-based Tecnon Orbichem put filament capacity at 167,000 metric tons in third-quarter 2000, with demand only 81% of that, at 135,000 metric tons.
Three big Western producers, DuPont, Bayer and Globe, all boosted spandex capacity within the last three years. But so did five producers in Korea — Saehan Industries, Kohap Ltd., Taekwang, Tongkook, Hyosung and Sunkyong.
“As we expanded, the numbers came out for Asia,” says Marketing and Merchandising Manager Jan Nolen of Bayer Dorlastan spandex in Bushy Park, South Carolina.
The numbers, she said, were “shattering. Just realizing how many more new players are on the marketplace,” made corporate strategizing difficult to say the least.
Hyosung Corp.’s 20,000-ton capacity will grow to 35,000 tons this year, making the Korean company the second largest producer behind DuPont, with 12% of world output, according to a Hyosung spokesman. Once, industry observers generally accorded that No. 2 position to Bayer, part of Germany-based Bayer AG.

Hosiery is major market.

Gap Could Narrow
The gap between capacity and demand should narrow some by 2005, if demand continues to rise and capacity growth slows, Mr. Dobson believes, though he doesn’t expect it to be erased.
The big Korean producers, which make generic spandex in contrast to higher-priced branded or premium specialty yarns, will continue to grow, he said.
With South Korea’s inability to consume the country’s current 70,000 tons of spandex capacity, much of what Korea makes is exported, Mr. Dobson said.
South-Korean-owned mills on the West Coast give the product an entrée into the USA, he said.
Korean producers may have come up with a winning combination of good quality and low price. One non-Korean USA mill executive who sampled a South Korean product said, “We thought it was fine.” He cautioned, however, that there can be a difference between how a product performs in sampling and in commercial production.
Lycra giant DuPont also has moved rapidly into generic spandex production in partnership with Asian producers.
DuPont’s joint generic spandex venture with Saehan, DSI Inc. still plans to move from 1,000 tons to the 4,000 tons envisioned when it was formed last year. DuPont also has signed a letter of intent with Chinese company LYG in Lianyungang for yet another joint venture in generic spandex — this one with 4,000 tons of capacity and seeking to grow to 7,500 by the second half of next year.
The DuPont-Saehan joint venture is intended to produce spandex for export, but “in China, we’re definitely there to serve the local market,” Mr. McCracken said.
The move instantly increases DuPont’s position in “what’s emerging to be the most important textile market in the world,” he said, noting that China accounts for about 25% of the world’s textiles.
DuPont is also expanding Lycra capacity at wholly owned or joint-venture facilities in Singapore, Brazil and Shanghai, adding 18,500 tons.
Even in light of his own company’s capacity buildup, Mr. McCracken admits that worldwide, “The capacity is outgrowing the market growth.”

Impact of Falling Prices
In the USA, the world’s largest spandex market, oversupply has depressed prices, disappointed stockholders, spurred mills to switch suppliers, and introduced spandex into garments where it was never cost-effective before.
DuPont has seen prices fall and felt the effects on its balance sheet. DuPont developed spandex in the late 1950s as an alternative to rubber in women’s girdles. Through savvy marketing and advertising, the timely introduction of new products and assiduous customer care, DuPont’s Lycra brand is solidly associated with stretch in consumer consciousness.
In 1999, the company’s specialty fibers division, which besides spandex includes impact-resistant Kevlar and some nonapparel fibers, showed sales growth of $100 million over 1998.
By the end of third quarter 2000, however, DuPont said that increased sales of Kevlar and the specialty fibers segment’s other products weren’t enough to offset a drop in spandex sales. Quarterly sales for the segment fell $4 million from the comparable ’99 period. In the fourth quarter the slide continued, with sales falling $69 million from fourth quarter 1999.
The price drop contributed to the Chapter 11 US Bankruptcy filing earlier this year of the 56-year-old, Fall River, Massachusetts-based Globe Manufacturing Co., maker of Glospan brand spandex.
Just last month, a federal bankruptcy judge approved the sale of Globe’s spandex operations, which includes three USA plants, to Radici Spandex Corp., part of the Bergamo, Italy-based diversified manufacturer Radici Group.
Early indications are that Radici intends to continue Globe’s spandex production.
“Partnering with Radici Group provides an opportunity to create incredible synergies within existing markets, as well as to gain entry into new global ones,” said Globe CEO Richard Heitmiller when the proposed sale was announced.

Spandex, made of more than three-quarters polyurethane, is going into knits, wovens and even nonwovens.

Facing Other Challenges
Oversupply isn’t the only problem facing spandex suppliers. The filament, which is more than three-quarters polyurethane, is subject to the same price swings in raw materials as other synthetic fibers. And in the USA, the much-touted economic slowdown is definitely being felt.
Price competition is growing fiercer as anxious manufacturers become nervous about unloading production in the face of current market challenges.
“As the market has gotten very lean, there’s a sense of urgency to sell out your plant,” said Globe’s Mr. Girrier.
Said Bayer’s Ms. Nolen: “Prices continue to fall. Not just ours, everybody’s.”
One yarn maker reports that within the last six months his company’s use of a lower-priced, domestically produced spandex in place of Lycra has gone from zero to 20%. There’s probably a 20% difference between its price and Lycra’s, he said.
Many customers remain loyal to the Lycra brand, which DuPont has spent 40 years perfecting and promoting, and they continue to specify its use. Still, they expect to pay less for it than they have in the past.
Nevertheless, the Korean product, a 40-denier, commodity-type spandex, has found a home in the circular knit segment of the market, its USA competitors say. It’s such a large segment that all producers are in it. Fabrics produced include fleece, some double knits, sweat suits, activewear and now low-end, cotton jersey fabrics for casual and athletic wear.
There was a time, Mr. Girrier said, when “you couldn’t sell the stretch cotton jersey goods for enough money to justify the cost of the (spandex) material.”
Not any more. They’re now being sold through mass merchandisers. For spandex makers, Mr. Girrier said, it’s a two-edged sword. More spandex is being sold, but mass markets tend to be fickle.
Mr. Girrier believes American producers would do well to nurture the niche markets, like swimwear, where Globe has well-established long-term relationships. Globe’s Type S-17B Glospan continues to be appreciated in this niche for its chlorine resistance.

Promoting Expertise, Service
American producers are also combating foreign competition by touting their ability to assist mills technically with spandex, which behaves differently from other synthetics during weaving and knitting.
“We’re very proud of our customer service, technical service and capabilities and response time,” said Bayer’s Ms. Nolen, noting that Bayer works with each customer on research and development.
“We have been able to reengineer fabrics with our customers using a lower denier while maintaining the same power and strength,” she said.
That gives the spandex buyer better yield, “and when you get a better yield, the end result should be a better price on fabric,” she said.
At Globe, the technical service department is as active as the salesforce, Mr. Girrier said. In niche markets, as opposed to commodity markets, a producer needs to work with the mills and help evaluate problems and assist in fabric development, he said. “You’re not going to be able to sell these things at arm’s length.”
DuPont representatives said their service package, innovation and branding provide the differentiation that gives Lycra its clout in the spandex field.

Glospan® spandex is being used in swimsuit collections.

Lycra Holds Up
Despite its recent moves to capture market share in generic spandex, Lycra is and will continue to be 90% of DuPont’s spandex business, Mr. McCracken said. “All of the innovations, the value-added benefits, all of the service will be targeted through the Lycra business.”
Branded and specialty spandex account for some 87% of the world market, Tecnon’s Mr. Dobson estimates, but he expects generic yarn to grow to be as much as 30-35% by 2005.
Lycra, which Mr. McCracken considers the only true spandex brand, is growing faster than generic in terms of revenue dollars. “When people get more quality conscious, we tend to enjoy a higher share. We stand behind the product,” he said.
Explaining Lycra’s appeal, he cited special characteristics like white retention, chlorine resistance, fabric markers, and ability to withstand heat. DuPont’s technological prowess has also created some new products, such as gentle-stretch Lycra Soft, for which yarn makers say there are no market alternatives.

Hosiery, Underwear Markets Sag
Two of spandex’s traditional markets, intimate apparel and legwear, are flat or struggling. Said Ms. Nolen at Bayer: “That goes hand-in-hand with the economy.”
At BASF Corp., Apparel Merchandising Manager Tristine Berry said intimate apparel sales are no longer growing in double digits. “But the stock market was in double digits, too, and it’s not any longer,” she said.
BASF nylon is paired with spandex in swimwear, intimate apparel and activewear.
Hosiery and legwear, which Mr. McCracken ranks as Lycra’s second largest market, is suffering the effects of more casual office attire and a turn away from pantyhose.
However, Tecnon’s Mr. Dobson said this is not a worldwide phenomenon. In the Far East, he noted, “dressing down is not regarded with any favor.”
Sales of pantyhose are increasing rapidly there, he said, as disposable income and fashion awareness rise. Still, hosiery sales are not what they used to be.

Inroads into Nonwovens
On the bright side, use of spandex in disposable nonwovens, such as diapers and medical products, is growing. Said Lycra’s Mr. McCracken, “It’s a nice business for us.”
Bayer makes spandex, which is nonallergenic, for wraparound bandages. Ms. Nolen believes medical and other nontraditional uses are a growth area where “we’re definitely beginning to scratch the surface.”
Bayer also makes spandex for shoe linings but isn’t in that market in a major way. DuPont, on the other hand, is jumping in with both feet, teaming up with shoemaker Easy Spirit in introducing “Smart Shoe with Lycra.”
Lycra adds a recovery element to leather’s stretch — “Memory,” DuPont calls it. Part of DuPont’s “Leather With Lycra” program, the leather is laminated to the entire hide before it’s cut.

Wovens Market Still Huge
Probably the most important trend, however, is the use of spandex in wovens to give shape retention, stretch for comfort, and drapeability.
Here, Lycra is king. Wovens is Lycra’s biggest market, even though it may make up as little as 2% of the fiber content in any given garment.
Simply because of the shear size of the woven apparel market, wovens also offers the biggest growth opportunities, said Linda Kearns, Lycra brand manager. She estimated the ready-to-wear market penetration for Lycra at between 5-10% in the USA, and up to 30% in the teen market.
Skin-tight biking shorts and running pants that used to scream “Lycra” are being joined by a new, looser-fitting kind of activewear that appeals to more of the population. This includes jackets, tops and sweatpants. The percentage of Lycra used in each garment is less — as comfort, not compression, is the goal — but the volume potential is huge.
The adjustments required at mill level to weave yarn containing Lycra are worth it, said Joel Futterman, executive vice president of product development and fiber sourcing for Burlington Performance Wear.
“It certainly is a key component of our women’s wear business,” he said. Spandex is not yet an important element in men’s wear, but he believes it could be.

New Uses and Developments
Other manufacturers continue to develop new products using spandex. For example, Sapona Manufacturing, Cedar Falls, North Carolina, is fielding orders for its new air-entangled spandex and Celanna acetate.
“Every time we’ve done something with spandex, it sells better,” said President Dean Lail.
A new textured, bright-finish Ultra Micro-Touch nylon microfiber from BASF is being paired with spandex in seamless and circular knits.
The seamless phenomenon is widespread, with knitting machines originally designed for hosiery being used to knit swimwear, intimate apparel and stylish tube tops sold in women’s apparel stores.

DuPont Lycra President Steve McCracken

Here to Stay
Consultants are divided on whether the new uses and market growth will narrow the gap between demand and capacity.
Fiber market watcher PCI Group of the UK sees capacity rising by 2005 to a spectacular 260,000 tons, with demand reaching only three-quarters of supply.
Tecnon’s Mr. Dobson sees both supply and demand rising more modestly and coming more in line with one another by 2005. He predicts 188,000 tons of capacity in ‘05, but a demand that’s 95% of that, at 180,000 tons.
“Further estimates from the trade forecast that this gap will continue to narrow, but relatively slowly, until year 2010,” Mr. Dobson said. “By that time, there could be other new capacities introduced, especially in the Far East.”
Globe’s Mr. Girrier believes that most spandex producers, at the moment, “are holding their horses” on new capacity. But, he said, it’s hard to know for certain what other producers around the world are planning.
But of this he is sure: “You don’t just order a new spandex plant, put it up and plug it in.”
Lycra’s Mr. McCracken sees signs that the rapid capacity building is slowing down, and “that’s probably a smart thing.”
The one point of agreement for the entire industry is that spandex itself won’t lack for customers.
Consumers, said Mr. McCracker, look for five things in clothing — comfort, easy care, durability, style and value. They rearrange those priorities frequently, he said, “but comfort is always at or near the top.”
Added Globe’s Mr. Girrier: “I never have seen a style where stretch was put in where they took it out.”