Originally created 09/06/98

Hankook faces two-year delay



It's not the kind of news Augusta wants to hear, but economists and synthetic fiber industry experts say work on Hankook Synthetics polyester plant could be delayed up to two years.

The Asian financial crisis that hit just as the South Korean company announced the $1.2 billion project still hasn't bottomed out, experts say, and the worldwide market -- already glutted with polyester -- doesn't have room for another producer right now.

"Conditions in the industry have soured quite a bit," said Frank Horn, president of the Washington-based Fiber Economics Bureau, a trade association and publisher of the World Directory of Manufactured Fiber Producers.

Now is not the time to be building a new plant, particularly in the U.S., according to Mr. Horn. His statistics show South Korean and Taiwanese imports are up 23 percent since both slashed prices on polyester filament yarn to about 60 U.S. cents per kilogram, almost 20 cents below last year's prices.

It was a different and much better market last year when Hankook Synthetics announced its plans in Augusta to build the world's most technologically advanced polyester plant.

The four countries accounting for 60 percent of global production, the U.S., China, Taiwan and South Korea, have been forced to cut productivity anywhere from 10 percent to 30 percent, he said.

Domestically, production is down about 3 percent for the first half of 1998 compared to last year, he said, adding that domestic shipments are down 4 percent and inventories have swelled 10 percent.

A company's best strategy now is to wait out the economic storm, Mr. Horn said.

"A prudent investment in this industry is going to wait for better times," he said. "How long? We'll have to wait and see. A lot of people think Asia will bottom out in the second-quarter of next year. Some people are saying it will take two years."

Hankook officials, after the second announced construction start was missed, said the project was on hold indefinitely while the company tried to find a domestic partner to lend financial credibility.

Eugene Chin Yu, Hankook's interim president of the American subsidiary corporation, said the company's South Korean executives have hired a London-based consulting firm to conduct a feasibility study on a possible joint venture.

He declined to name the company Hankook is reportedly negotiating with, but added that Hankook officials are "still looking at trying to start something this year."

But financing the mammoth project should prove difficult even if Hankook manages to find another producer to partner with, according to Georgia State University Economist Donald Ratajczak.

"Who is going to finance a Korean company even in the United States?" he said in a recent interview. "You can't find a handful of Korean companies that could find financing anywhere in the world."

If the factory is built, the planned 550-acre plant is expected to employ up to 1,800 in Augusta by 2008. The first phase of the complex, to be located in the Augusta Corporate Park, was scheduled to start up in 2000.

Billed as the state's second largest industrial development, the plant is expected to produce filament yarn for textiles and bottle-grade polyethyleneterephthalate resins for beverage packaging.

However, many industry analysts have said the global synthetic fiber industry is starting to see the effects of overbuilding in the Pacific Rim during the last few years. Mr. Horn agrees.

History appears to be repeating itself, he said. Double-knit polyester clothes were all the rage the last time the industry overbuilt in the late 1970s. The market collapsed after polyester clothing went out of style in the early 1980s.

This latest round of overbuilding has occurred since advancements in polyester fibers and blends have fueled new demand for the product, particularly in womenswear.

"The growth in polyester fiber production in 1997 was 14 percent -- that is unheard of in the fibers business," he said. "In Asia, where economies had been growing so fast, it's easy for them to get carried away."