Faced with production overcapacity, makers of carbon fiber and pre-impregnated composite materials are scrambling to find new markets, reduce costs and move past a federal investigation.
Carbon fiber suppliers are suffering through a market glut that is driving down prices and narrowing profit margins. It's a far cry from the fiber shortage that existed around 1996 and prompted major investments in capacity that now are becoming available.
The cyclical downswing in the aerospace market is exacerbating the problem. Boeing Co. and Airbus Industrie expect to build a total of 797 aircraft next year, down from 913 this year.
Consolidation has narrowed the domestic prepreg industry to 13 firms, down from 17 players in 1993. Those suppliers sold structural prepreg worth more than $650 million last year, according to Benjamin Rasmussen, a principal with consulting firm BMR Associates in North Plainfield, N.J.
Two prepreg suppliers dominate the market. Cytec Industries Inc.'s specialty materials sector and Hexcel Corp.'s composite materials segment will have about 41 percent and 35 percent, respectively, of the 1999 worldwide market excluding Asia, said Ray Williams, president of consulting firm Strategic Marketing International in Escondido, Calif.
That market will produce 18.4 million pounds of prepreg during 1999, he forecasts, compared with 16 million pounds last year.
The 1999 projection includes 4.7 million pounds for commercial jet transports, engines and cabin interiors; 5.4 million for military jets, general aviation and propulsion rockets; and 5.6 million for recreational equipment.
Among the smaller firms is Cape Composites Inc. of San Diego, which employs 40, has an annual prepreg capacity of 2 million pounds and expects 1999 sales to approach $10 million.
``We see significant growth opportunities for commercial-grade, carbon-fiber prepregs,'' said President Dave Abrams.
Large-tow carbon fiber costs less than aerospace-grade material and is gaining ground in automotive, industrial and other uses.
``We are currently selling prepregs for less than $10 per pound in volume,'' supplying recreational and medical markets and pursuing automotive and industrial applications, Abrams said.
Rasmussen said, ``All prepreg suppliers now are looking for more business. Everybody is scrambling to look outside what Boeing and Airbus are committed to.''
Pricing is key.
``Prepreg as we know it is a relatively expensive and slow material to convert to a finished product,'' he added. ``People find it desirable because of its consistent properties. The problem is how to convert it faster and make it affordable against steel structure or thermoplastic sheet molding compound.''
Meanwhile, a federal grand jury in Los Angeles is hearing testimony in a Justice Department antitrust investigation into the carbon fiber and prepreg industry. Hexcel and Cytec mentioned the grand jury subpoenas in 10-K filings with the Securities and Exchange Commission.
``The Department of Justice appears to be reviewing the pricing of all manufacturers of carbon fiber and carbon-fiber prepreg since 1993,'' Hexcel said. ``The company is not in a position to predict the direction or outcome of the investigation and is cooperating.''
Cytec said, ``The company has no reason to believe it is a target of the grand jury investigation.''
Beginning in January, FBI agents requested business documents from carbon fiber and prepreg units of Cytec, Hexcel, BP Amoco plc, Mitsubishi Rayon Co. Ltd., Toray Industries Inc. and Toho Rayon Co. Ltd.