Carbon Fiber Prices
Dateline: 08/19/99Breaking News
Follow the latest news on this story at my Daily News page. I'll be posting links to articles and press releases as new information becomes available.
Manufacturing Capacity
Carbon fibers have always been an expensive material. In the early to mid 1990s, high costs coupled with an industry-wide shortage made fibers especially difficult to procure. Industry publications during those times pointed to a lack of manufacturing capacity as the reason for both the high prices and the shortages.
These problems now seem to be resolved. In its August 1999 issue, Modern Plastics reports that "lower prices and huge capacity increases" are responsible for moving composites into such non-traditional areas as the building and construction market.
Prices have been falling lately, and they are likely to continue falling. Modern Plastics cites capacity increases at specific plants of anywhere from 50% to 1000%. Overall industry capacity could increase by 65% from 1995 to 2000.
The types of fibers mentioned by Modern Plastics are mostly construction grade. Although I have not found any statistics covering aerospace grade fibers, my own experience indicates that the same trends exist in that segment of the market. Whereas one or two years ago I had trouble finding any significant quantities of IM7 fibers, today I have no trouble procuring as much as I need.
Price Fixing Allegations
The US Department of Justice, since late last year, has been looking into pricing practices in the carbon fiber industry. According to the 19 August 1999 issue of USA Today, the DoJ "is building a strong case against some leading makers of graphite" fibers.
Before the USA Today article was published, little public information was available, and even now news is still scarce. Both Hexcel and Cytec reference the investigation in recent SEC filings.
Hexcel says the following in their 1998 annual report:
The Company is aware of a grand jury investigation being conducted by the Antitrust Division of the United States Department of Justice with respect to the carbon fiber and carbon fiber prepreg industries. The Department of Justice appears to be reviewing the pricing of all manufacturers of carbon fiber and carbon fiber prepreg since 1993. The Company, along with other manufacturers of these products, has received a grand jury subpoena requiring production of documents to the Department of Justice. The Company is not in a position to predict the direction or outcome of the investigation and is cooperating with the Department of Justice.
Cytec says the following in their 1999 second quarter report:
In January 1999 the Company received a subpoena to testify before, and provide documents to, a grand jury in the U.S. District Court for the Central District of California. The subpoena relates to a Grand Jury Investigation of the carbon fiber and prepreg industry. The Company has no reason to believe that it is a target of a grand jury investigation.
Fiber versus Prepreg
The USA Today article focuses on carbon fibers. As the quotations above indicate, however, the DoJ is also interested in carbon fiber prepregs.
Hexcel is the major producer of carbon fibers in the United States. Hexcel and Cytec are the two major suppliers of prepregs. Both deny being actual targets of the investigation (Hexcel in the USA Today article; Cytec in its quarterly report). In a more recent Reuters article, Cytec confirmed that the DoJ has told the company they are not a target of the investigation.
If those statements are true, that doesn't leave much for the DoJ to be investigating. After Hexcel and Cytec, the prepreg market belongs to a dozen or so smaller prepreggers, none of which can be said to have a significant market share in comparison to the two leaders.
Hexcel has a bit more competition in the carbon fiber market: Toray and its US subsidiaries, BP Amoco, and the SGL Carbon Group produce a significant share of aerospace grade fibers. Other producers, such as Aldila and Zoltek, target the large tow market, which are generally not considered aerospace grade. Furthermore, these other producers did not have a significant market share until recently.
Industry Mergers
The situation is complicated by recent consolidations and mergers in the composites industry. During the time the DoJ is interested in (up to about 1996), neither Hexcel nor Cytec were significant players in the fiber and prepreg markets.
Hexcel acquired its fiber lines and some of its prepregs from Hercules in June of 1996. Before that acquisition, Hexcel was mainly known for its honeycombs, though it also had its own line of prepregs.
Besides Hercules, the other big prepregger in the early 1990s was Fiberite. Its prepreg lines were acquired by both Cytec and Hexcel in 1997.
Industry Stocks
The table below shows closing stock prices (19 August 1999) for publicly traded fiber and prepreg manufacturers. Hexcel, one of the more likely targets of an investigation, was up slightly on very light volume.
SGL Carbon, another possible target, was also up slightly, again on light volume. Zoltek, which is unlikely to be a target, was unchanged on light volume.
Cytec is more interesting. They were down about 4.5% on heavy volume. Aside from the USA Today article and subsequent press releases, there has not been any recent news about Cytec. It's hard to tell, though, if today's news caused the drop. Cytec's earnings have been struggling lately, and it's stock price has been on a downward trend from its 52 week high.
Aldila is also interesting. They hit a 52 week low on heavy volume and no recent news. Again, though, it is not likely that their stock price has been impacted by news of the investigation. Aldila only recently began manufacturing carbon fibers and prepregs, and most of the materials are still used internally. The stock price has also been on a steady downward trend, mainly because of weaknesses in the graphite golf shaft market.
| Symbol | Price | Change | Volume | Day Range | 52-wk Range |
| ALDA L | 1.31 | -0.22 (-14.29%) | 197,400 | 1.31 - 1.66 | 1.37 - 5.12 |
| CYT | 23.62 | -1.12 (-4.55%) | 384,700 | 22.50 - 24.62 | 14.87 - 31.93 |
| HXL | 8.25 | +0.06 (+0.76%) | 9,000 | 8.19 - 8.25 | 6.00 - 14.50 |
| SGG | 27.88 | +0.25 (+0.90%) | 900 | 27.50 - 27.88 | 13.25 - 35.50 |
| ZOLT | 7.94 | +0.00 (+0.00%) | 15,800 | 7.88 - 8.00 | 6.62 - 17.87 |