Friday 7 December 2012

Cheap Cotton lowers Lenzing expectations but longer term the Cellulose Gap will help.

At a Berenberg conference in London, CFO Thomas Winkler presented on behalf of Lenzing. On the company’s strategy, Mr Winkler highlighted the positioning of its fibre products (viscose, Tencel) against cotton and synthetic fibres. The main drivers for the strong demand growth for viscose (in excess of 10%) are megatrends such as population and wealth growth, the latter leading to a substitution of synthetics by organic fibres. In the long run, the “cellulose gap” equity story is very intact, Mr Winkler said.

A Berenberg analyst said that they feel the company is now very frank about communicating that there is a clear dependency of viscose prices to cotton prices (Lenzing’s fibres command a 10-15% premium over cotton). With cotton prices at low levels and Chinese stockpiles very high, pricing is currently weak – a situation that will most likely not change in the very short term. Lenzing will therefore only reach the lower end of its EBITDA guidance this year. In the mid-term, however, cotton dynamics could reverse, as cotton competes for acreage, consumes 27x more water per hectare than corn and there is no drought-resistant seed.

Source: Boerse Express

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