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Lenzing Cuts Costs as Profit Falls

Austrian viscose fiber producer Lenzing Group is tightening its purse strings for the remainder of 2014 in order to balance its disappointing second quarter. Consolidated sales for the first six months of 2014 were down 4.3% to $1.19 billion.

The company announced Thursday that difficult market conditions, including lower than average fiber selling prices, record high inventories and weak demand, drove first half earnings before interest and tax down 28.8% year-on-year. As a result, the company plans to cut its investments back to a minimum.

Lenzing reported that viscose staple fiber prices, which are driven by the Chinese market and linked to cotton prices, were down 12.5% compared to the first half of 2013. Prices are not expected to improve until 2015 at the earliest.

The cost reduction program excelLenz, which was implemented in 2013, was only able to partially offset the decline in sales and earnings. The originally planned savings of $79.5 million in 2014 will not be sufficient for Lenzing to be able to profitably manufacture fibers, and in particular, its European sites are experiencing the most strain.

To counter the sharp drop in fiber selling prices, Lenzing plans on focusing on specialty fibers and the more stable nonwovens. Both Lenzing Modal and Tencel saw ongoing high demand and very good sales volumes throughout the entire first half of 2014, generating attractive price premiums at the same time, the company announced. A newly opened, world’s largest Tencel plant in Austria is expected to produce a volume of 30,000 tons in 2014.

Chief executive officer Peter Untersperger, said, “The previously implemented measures have already proven to be effective. Once again we were able to increase the savings generated in the year 2014.” He added, “In light of the continuing market weakness we have to further sharpen the targeted annual cost savings of up to EUR 160 million [$211 million]. Moreover, we want to reach these targets more quickly.”