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Lenzing Blames Risk of Tariffs, Costs for Decision to ‘Mothball’ U.S. Tencel Expansion

Lenzing is putting the brakes on its Tencel production expansion in Mobile, Ala.

The company said Wednesday its managing board decided to “temporarily mothball” the project and would “reassess this decision on an ongoing basis.”

The Austrian-based cellulosic fiber company blamed the “rising likelihood of increasing trade tariffs, paired with the potential surge in construction costs due to the buoyant U.S. labor market” for increasing the risk profile of this project.

Lenzing first announced plans in 2016 to build a state-of-the-art plant with a production capacity of 90,000 tons per year at its site in Mobile. The facility was expected to be the largest Tencel fiber plant in the world, with an investment of $293 million. Operations were set to begin in the first quarter of 2019.

As a result of the decision, Lenzing said it will put “all its effort to readjust the execution of its growth plan to meet strong market demand of its lyocell fibers.” Lyocell is the generic fiber name for Tencel.

This includes an increased focus on a lyocell expansion project in Prachinburi, Thailand. While the company said it wasn’t totally killing the Alabama expansion project, it said no substantial lyocell volumes over and above the successful 25,000 tons of expanded production at its plant in Heiligenkreuz, Austria, will be added to the market in 2019 and 2020.

The Trump administration has imposed a series of tariffs on Chinese goods entering the United States, and China has retaliated. A threatened next round of tariffs on all Chinese imports would include textiles and apparel.

In reporting first-half financial results in August, Lenzing noted it has committed to investing more than 100 million euros ($115.87 million) in sustainable manufacturing technologies and production facilities by 2022 to meet greater sustainability goals. The company also said it would invest up to 30 million euros ($34.76 million) in a pilot line for the production of Tencel Luxe filaments at the Lenzing site in Austria.

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Lenzing said it continues to be fully committed to implementing its sCore TEN strategy meant to expand the company’s offering of specialty fibers, as well as to support customers and business partners more extensively. Lenzing also remains on track for specialty expansions, such as Tencel Luxe filaments and Lenzing Ecovero viscose fibers. The company said this decision, however, will slow down implementation of the lyocell specialty staple fiber growth.

Lenzing repositioned its master brand, Tencel, this year to sharpen its profile as a leader in sustainable innovation. Tencel is to be an umbrella brand for all specialty products in the textile segment and the Veocel brand serving the same function for the nonwoven segment.

Revenue in the first half ended June 1 declined 6.4% to 1.08 billion euros ($1.25 billion). Net profit for the period declined 39.3% to 91.3 million euros ($105.81 million).