In Interview: Global Influeces on Supply Chains for Producers of technical textiles

Fabian Kampsen and Robert Lerch represent the Management Board of the Heytex Group. Fabian is a “home grown” Heytex Manager and since 2020 in the position of Commercial Director. Robert came to Heytex in 2017 as Procurement Director. Regarding the current market situation for Technical Textiles, both got together reflecting on the actual developments since March 2021 on a regular basis.

Bramsche, in November 2023 / Interview No. 4

Fabian: Robert, almost a year has passed since our last interview, so let‘s jump right in. Relaxations in the supply chains and in the energy sector are increasingly present in the media. When will we be able to pass on the cost benefits to our customers?

Robert: In fact, we have seen an easing of prices for important raw materials, as well as freight and energy costs, in recent months. Among other things,
this has to do with a decline in general demand, but also with measures taken by governments to control price increases. On the other hand, we can observe
that the crude oil market, for example, is reacting extremely sensitively to current global events. This is driving up prices, which are then passed on directly
by our suppliers. I cannot foresee a comprehensive easing of the situation at present.

Fabian: Does this also apply to naphtha, which is obtained from crude oil and serves as the basis for many of our production materials? After all, naphtha was one of the main reasons for price increases in the past. What is the outlook here?

Robert: Over the last three years we have seen a significant, continuous price increase of 100% for naphtha, and since July of this year a further 35%. Unfortunately, our suppliers are using this as an argument for further fundamental price increases.

Fabian: Flame retardants are an important raw material for many of our products. Although naphtha does not play a role here, antimony trioxide does. How is the development here?

Robert: We are currently observing that the market for antimony trioxide is on the rise again. China, as the main producer country, has been with drawing
increasing quantities for the local market for around six months, which have been used for export in recent years.

Fabian: Which inevitably has an impact on the price. Which other plans concern us?

Robert:Well, we are facing an increase in truck tolls in Germany from November, a 15% increase in canal passages (Suez) from January 2024, road transport rate increases of more than 10% and container freight from Asia that has risen by more than 10% since September 2023. An unsightly development that requires a careful reassessment of our logistics strategies, although we have been able to reduce the peak in container shipments.

Fabian: And on the subject of energy and gas? Here we should expect a significant relaxation?

Robert:The normalization of electricity and gas prices is certainly a positive development, but they are still around 25% higher compared to 2021. This
continued price increase has an impact on our operating costs. For this reason, we are planning investments such as doubling our photovoltaic system in
Bramsche and building a plant in Neugersdorf and Zhangjiagang in 2024 to increase energy efficiency.

Fabian: That sounds like two sensible measures. In addition to the general procurement of green energy for our German sites for several years now, the expansion of our PV systems also makes a sustainable contribution to our ESG strategy. What other developments are influencing our industry?

Robert:Due to the lower demand, chemical producers are suspending production capacities in order to reduce production volumes. The anti-dumping
import duties for Chinese polyester yarns of up to 25% are a direct or indirect burden on us, as we either have to pay the additional duties or higher
purchase prices for yarn from other countries. We are also seeing a general shortage of imports from China to Europe, as more is being sold to Russia.
And last but not least, the inflation rate of 4.6% in 2023 and 2.5-3.0% in the 2024 outlook is directly reflected in our calculations in the rising wage costs.
We must overcome these challenges by adapting our procurement strategies and continuing to look for ways to optimize our costs. This also includes a
careful risk strategy to reduce dependencies on countries that are important suppliers for cotton or polyester, for example.

Fabian: Thank you very much for your valuable insights into these key issues. After months in which raw material prices stagnated or in some cases declined, we are now once again faced with cost increases. This, combined with generally weak market demand, puts us in a challenging position where we have to carefully weigh up our options.