I ndustry / Business
Synthetic fiber output booming, but dip ahead Shipments are up about 20% for first half of year, but industry forecasters expect growth rate to slacken in 1974 Synthetic fibers, long a cornerstone of the basic chemical industry's fortunes, have been in a boom for the past two years or so. Domestic production has been growing at an 18% annual rate, and largely as a result of this strength the chemical industry has had two years of substantial profit gain. This year looks like more of the same, with fiber shipments up about 20% during the first six months. How long can these good times continue? Not too much longer, it seems. The consensus of industry people polled by C&EN indicates that the rate of production growth will peak in early 1974 and the year as a whole will be one of more moderate growth for man-made fiber production. In the recent past, a slowdown for man-made fibers has spelled disaster for the chemical industry as a whole. In fact, what happens to synthetic fibers traditionally happens to the rest of the chemical industry about six months later. But this time the effects of slower growth likely will be less severe. From the way it looks now:
• The decline in growth rates this time will be less sharp than in 1967 and 1970 and will not last as long. • The squeeze on profit margins will be less severe since prices are expected to fall only marginally, not precipitously as in earlier downturns. • Industry capacity will stay in better balance. Both demand and plant utilization are high today and planned plant expansions now in the works are not excessive in light of current forecasts. • The long-term growth rate looks solid, with substantial gains in output likely between now and about 1978. If 1967 was a bad year for man-made fibers, 1970 was even worse. Actually, beginning in fourth-quarter 1966, production growth halted and showed no improvement for the next four quarters. With new plant capacity coming on stream during this downturn, plant utilization rates fell steadily from a healthy 89% in mid-1966 to a very unhealthy 74% by the third quarter of 1967. Total man-made fiber production rose from 3.93 billion pounds in 1966 to 4.05 billion pounds in 1967, an increase of only 3%. However, capacity during this period increased by 14%. Earnings weren't healthy either. After-tax earnings of the three industry leaders, Du Pont, Celanese, and Monsanto, fell badly—17% below the 1966 level (C&EN, March 6, 1972, page 7). After making a sharp recovery in 1968 (production jumped 29% above 1967 and plant utilization was again skyrocketing —to about 92% by fourth-quarter 1968),
Fiber makers post their third big growth year in a row...
On the cover Operator checks nylon produced at Du Pont's Seaford, Del., plant—the world's first nylon plant.
the man-made fiber climate again turned cold, frigid in fact, and no production gains were made for nine quarters. 1970 production actually declined by 3%. Prices again weakened because of abysmal plant utilization rates (about 73% by late 1970) and earnings fell again for Du Pont, Celanese, and Monsanto—15% below the already weak 1969 figures. First-quarter 1971 saw a recovery, and man-made fibers have been making good gains ever since, averaging about 16% a year in 1971 and 1972. In 1971, 6.15 billion pounds of man-made fibers were produced domestically, and in 1972 7.32 billion pounds were made. C&EN estimates that production of man-made fibers in 1973 likely will grow by an impressive 20%, to about 8.8 billion pounds, based on shipments for the first seven months of this year. Plant utilization has improved nicely during this recovery, too, climbing steadily from about 80% in fourthquarter 1971 to a sound 88% in fourthquarter 1972. Utilization rates thus far for 1973 are impressive. Capacity is being strained to the limits by a market that will buy all the synthetic fiber it can get its hands on. According to fiber economist Richard Karfunkel, of Abra-
...with polyester and nylon accounting for much of increase
Man-made fiber production, % year-to-year change
Production, millions of pounds
30
2500
25 2000 20 1500
15 10
1000
5
Polyester
500 0 -5
j 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973a a Based on fiber shipments for the first seven months. Source: Textile Economics Bureau
8
C&EN Sept. 3, 1973
1962 1963
1964
1965 1966
1967 1968
1969 1970 1971 1972
ham and Co., Wilmington, Del., plants are now operating at "well into the 90's [per cent]" of capacity, with the only limits being imposed by some raw material supply problems (C&EN, July 9, page 2). The earnings picture for the three industry leaders brightened as improving utilization rates firmed up prices. Du Pont, Celanese, and Monsanto together averaged a 10% net income rise in 1971 and a 12% increase in 1972 (despite a 9% net income drop for Celanese in 1972). But all good things must come to an end. Mr. Karfunkel says the current boom in man-made fibers will slacken somewhat by late 1973 and production growth should peak by the first quarter of 1974, with a trough by first-quarter 1975. However, Mr. Karfunkel doesn't see any disasters for man-made fibers like 1967 or 1970. In a recent fibers forecast, he points out that consumer demand will not collapse; peak-totrough decline in textile production will be shorter and less severe than in 1970; operating rates for noncellulosic fibers will decline from the mid-90's, but should hold in the mid-80's, well above the lows of 1967 and 1970, preventing serious price erosion; and noncellulosic fibers will continue to make inroads into cellulosic and natural fiber markets. Mr. Karfunkel also points out that current capacity expansions by producers are not excessive. Nonfiber producers, like Phillips Petroleum, who jumped into the synthetic fiber market in 1967 and 1970 are not expanding capacity this time, no doubt because they got burned in the last go-around. The big are going to get bigger, he says, obviously referring to Du Pont's 250 million pound-a-year polyester plant planned for Charleston, S.C. The industry seems to agree, for the most part, with Mr. Karfunkel's observations. Dr. Louis Fernandez, managing director of Monsanto textiles, sees growth of man-made fibers continuing in 1973-74, but the rate of growth "will be less breathtaking in the latter part of 1973 and during 1974." But he adds that it will continue to grow at a lower rate nonetheless. Monsanto is planning plant expansions "across the board" (in all synthetic fibers). Dr. Fernandez says that these plant expansions are actually "debottlenecking programs" to provide for "interim growth and let us maintain our share of anticipated market growth." Apparently Monsanto, like the rest of the industry, is being careful not to get into the overcapacity situations that characterized previous fiber downturns. Charles Reeder, a Du Pont economist, says, "Growth will have to peak eventually and may already have peaked." If this is the case, he says, this situation "should persist clear through 1974," more than anything because of capacity constraints and feedstock availability. He doesn't see any weakness in the
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Sept. 3, 1973 C&EN
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man-made fiber market contributing to decreased growth. Richard A. Norton, vice president for marketing of Allied Chemical's fibers division, says that fiber supplies are tight now and any slackening in the economy in 1974 "might reduce demand for yarn to a point where supply/demand relationships are brought into balance." He adds, "It now seems doubtful as to whether even in the event of a downturn in the economy that demand for synthetic fibers will significantly lessen." Mr. Norton cites market penetration of synthetic fibers into natural fiber markets, caution in capacity expansion by some fiber producers due to feedstock shortages, and continued lack of foreign fibers as the reasons for continued high demand and hence high prices. The future for man-made fibers looks good. Mr. Karfunkel sees man-made fiber activity in the second half of 1975 substantially above the second half of 1974 as man-made fiber production comes out of the first-quarter 1975 trough. The Textile Fibers Institute estimates the domestic market in 1978 at 3.2 billion pounds for nylon, 4.4 billion pounds for polyester, and 1 billion pounds for acrylics, a total of 8.6 billion pounds. This represents a 65% increase over the institute's 5.2 billion pound estimate for 1973. Du Pont sees total U.S. textile mill consumption in 1978 at about 14.5 billion to 15 billion pounds. Thus nylon, polyester, and acrylics alone could account for almost 70% of all fibers consumed in 1978. The reasons for this tremendous growth are many, but they seem to boil down to three basics cited by a Du Pont spokesman. Barring disasters, natural or otherwise, population and real income will grow worldwide, and therefore demand will also. Man-made fibers outperform natural fibers (in durability, ease of care, for example). Prices of synthetics have declined over the years while prices of natural fibers have been continually climbing (cotton now sells at about 60 cents a pound—about double the price of polyester). And synthetics will continue to eat into natural fiber markets as natural fibers become increasingly less available and prices soar. For one thing, land previously used for fiber production will have to be used for food production to feed the world's burgeoning population.
Du Pont foresees end to rail freight snarl Chemical rail freight has become such a snarl, particularly in the Northeast, that it is difficult even to sum up the problem. But one major shipper, Du Pont, although admitting the gravity of the problem, foresees a possible turnaround. The very severity of the situation is bringing a number of management solu10
C&EN Sept. 3, 1973
tions to the forefront. And a further stimulus has come from energy considerations. This is the thinking of John H. Norton, manager of Du Pont's common carrier transportation division. In a company statement for employees last month, Mr. Norton viewed potential resolution of the rail bind in the Northeast as a catalyst for efficiency in other railroads as well. Resolution could open up ways to reduce unprofitable operations, streamline work rules for higher productivity, give a cheaper route for piggyback snipping, cut red tape, improve intercarrier cooperation, and upgrade equipment. From the ecological and energy standpoint, Mr. Norton points out that locomotives use less fuel and emit fewer pollutants for a given cargo and distance than do trucks. It takes roughly five times more energy to move a ton of cargo 1 mile by truck than by rail, he adds. For the present, however, the situa-
Du Pont rail accidents soar Accidents per billion pounds shipped
10 ^ M ^ M ^ M ^ M ^ M ^ M
0 ^ H ^ H ^ M ^ M ^ M ^ M 1967 1968 1969 1970 1971 1972 1973a a First six months. Source: Du Pont
tion is worsening by the month both in financial and in safety terms. Half the trackage in the official Northeast railroad district belongs to six railroads in bankruptcy, according to Du Pont. This network affects 19 Du Pont plants plus other facilities. Switching to other shipping modes could double the company's $35 million rail freight payments in the area. Overall, Du Pont pays 43% of its U.S. freight expenses for rail service ($91 million in 1972). The importance of the rail part of the company's total shipping has declined in the past several years as the company turned to trucks for faster delivery of smaller shipments. To help the Northeast railroads, Du Pont suggests several key elements for any solution. These are minimum government control, faster abandonment of unprofitable rail service, heavy injection of capital aided possibly by a 1% tax on freight, development of a core system of track, and financial aid through private or government loans.
Unemployment low for chemical engineers Unemployment among chemical engineers in this country currently is running at about a 1.4% rate—the lowest in several years. And the median salary of chemical engineers is now $19,500, up $1500 or 8% from a year ago. These are the major findings of the latest economic survey by the American Institute of Chemical Engineers of its members. The survey is based on more than 4200 responses to questionnaires sent to a sample of 8400 of AIChE's 31,000 U.S. members in January. These findings somewhat parallel those from ACS's 1973 Comprehensive Salary and Employment Status Survey (C&EN, June 18, page 6). This poll of ACS members revealed an unemployment rate among chemists of 1.8% this March. It also revealed that chemists' salaries had gone up an average 7% between March 1972 and March 1973. The AIChE findings confirm the continuing improvement in the employment climate for chemical professionals. Earlier AIChE studies put the unemployment rate for chemical engineers at 1.7% in January 1971, 3.7% in July of that year, 2.8% in January 1972, and 2.2% in the following July. However, the new survey reveals that there are still some areas of the country where unemployment is a major problem. For instance, the jobless rate for chemical engineers in New England is 4.7%, according to the latest AIChE survey. It is 2.6% in the Mountain States, and 2.2% in the important Middle Atlantic area—New Jersey, New York, and Pennsylvania. For chemists, the areas of highest unemployment are the East South Central region and the West Coast, according to ACS. A more detailed analysis of the latest AIChE results shows that 96.2% of the institute's members are employed full time—up from 94.0% a year earlier. Those employed part time are down to 0.2% from 0.3% in 1972. Those consulting, 1.8% of the total, seem happier in their job—only 15% of them would take a full-time job if they had the chance, down from 21% who would have last year. But the biggest employment improvement has come for chemical engineers who are not U.S. citizens—last year 11.2% of them were unemployed. This year only 2.7% are. The salary data in the latest survey show that the best-paid chemical engineers are those involved in administration, with a median salary of $27,000. The lowest paid are those in maintenance—$14,500. For those in R&D, the median is $19,500; in education, $18,500. For chemical engineers in industry, median salaries range from $16,000 for those working for food and beverage companies to $22,000 for those in what AIChE calls "rockets, etc." The median salary for those in the chemical industry is $20,000.
