VIENNA (Reuters) - Austrian fibers producer Lenzing (LENV.VI) will focus on setting up a new production facility in Thailand after halting its planned U.S. expansion due in part to rising trade tensions, its chief executive said on Thursday.
The firm, which makes cellulose fibers used in textiles, said late Wednesday it was mothballing a $322 million project in Alabama, partly due to rising tariffs between the United States and China, where much of the project’s production was destined.
Stefan Doboczky told Reuters on Thursday that a final investment decision on a new facility in Thailand would be made in a few months.
Thai production volumes would be around 90,000 tons per year - roughly the same as initially planned for the new U.S. plant, he added.
Lenzing is expanding internationally and announced in summer last year that it planned to enter the Thai market.
“It is ... one of the few countries that have free trade agreements in the ASEAN (Association of Southeast Asian Nations)region as well as with China and India,” Doboczky said, when asked why the new focus on Thailand.
“(To be able) to supply customers worldwide is extremely important in our business.”
Chinese textile exports to the United States now face a 10 percent tariff, and Doboczky said it was possible those tariffs might increase and that China would respond with counter-duties.
“Our assessment is that products such as our Lyocell fiber may be affected.” Lyocell, a fiber produced from wood, is one of the group’s top-sellers.
Lenzing shares closed down around 14 percent on Thursday.
Doboczky said the company would wait until there was clarity regarding tariffs before deciding when to restart the U.S. project.
He also wants to see signs that the local jobs market is easing, as a big rise in labor costs was another reason for stopping construction at the Alabama site.
“It is our clear target to continue (building the U.S. site) and to push the start button again at the right time.”
The CEO said he did not expect substantial impairments due to the construction halt and 2018 earnings would not suffer.
“We now have neither a profit warning for 2018, neither a change in our earnings, nor do we face a write-off,” he said.
Lenzing expects 2018 earnings to be lower than in the last two years, partly due to increased commodity prices and strong competition on the fibers market.
($1 = 0.8560 euros)
Editing by Thomas Seythal and Mark Potter