SAE-A Trading eyes polyester yarn plant in Guatemala - Just Style
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SAE-A Trading eyes polyester yarn plant in Guatemala

By admin-demo 05 Jul 2019

SAE-A Trading eyes polyester yarn plant in Guatemala

South Korea’s SAE-A Trading, one of the world’s largest apparel manufacturers and exporters, is considering building an estimated US$200m high-tech industrial complex in Guatemala to make polyester yarns. Its goal: taking advantage of rising US demand for apparel made in Central America. 

The investment is still “under review,” a spokesperson for the Seoul-based company told just-style, adding: “We have not yet made our investment decision.” 

In February, the Guatemalan ministry of economy said in a statement that the proposed complex would be the first in the country to weave, dye and sew in a single operation. 

SAE-A already operates a 71-line knitting operation producing 5.9m units a month and employing more than 5,000 people outside the country’s capital, Guatemala City. And within the region it has a state-of-the-art cotton spinning mill in Costa Rica, and also produces 4.9m units of knitwear a month in Nicaragua, and 7m units of knitwear a month in Haiti, according to the company’s website.

By converting its presence in Guatemala into a vertically integrated system, an estimated two-year project, SAE-A would be able to take advantage of Guatemala’s proximity to the US to increase sales, given American buyers are looking to Central America for more apparel supplies. 

A strong reason for this is that an accelerated US-China trade war would hit many Chinese clothing imports with an additional 25% tariff, pushing the total import duty above 30%. This would handicap imports from China, the world’s largest clothing and textile producing and exporting nation. 

By comparison, Central American countries Costa Rica, El Salvador, Guatemala, Nicaragua, and Honduras and the Dominican Republic participate in the Dominican Republic-Central America Free Trade Agreement (DR-CAFTA) with the US, meaning that clothing manufacturers can export products duty-free to their northern neighbour.

“We are more competitive,” Alejandro Ceballos, president of Guatemala’s Apparel and Textiles Commission (Vestex – Asociación del Vestuario y Textiles de Guatemala), told just-style.

This competitive edge would improve if SAE-A were to go through with the expansion project, as it would increase local supplies of polyester yarn, Ceballos says. By his estimates, buying the yarn locally would be 20% to 30% cheaper than importing from the US, its leading supplier of the key raw material. 

Despite the rising demand for apparel from the US, Ceballos says buyers of clothing “are not finding the quantities that they need” in Central America, as the market is some 40-times smaller than that of China’s. This is an incentive for building capacity in the region – and probably a driver of SAE-A’s ambitions, he adds. 

“We could grow five- or six-times the size we are today,” he says of Guatemala’s apparel sector, which supplies about 1% of the clothing demand in the US, according to his calculations.

Attracting investment

Ceballos could not estimate how long it would take to boost production by that amount, but says the conditions are in place to attract the investment to make this happen. 

The economy is expected to grow 3.5% this year and 3.6% in 2020, the fastest in Central America after Panama, according to a forecast by the International Monetary Fund (IMF). And the two candidates in the 11 August runoff election for president – centre-left Sandra Torres and right-winger Alejandro Giammattei – have both vowed to make the apparel sector – the country’s largest exporter – a priority, Ceballos says. 

“If they support us, we can easily double our production” by increasing the use of existing capacity.

Guatemala, he adds, has more stability for buyers and investors than the other big apparel-producing countries in the region. 

Investors are nervous about the leftist political leadership in Mexico as well as the threat of a trade stand-off with the Trump administration. Corruption, social unrest and violent crime are undermining the business climate in Honduras, while Nicaragua’s economy is engulfed in a political crisis. 

In the meantime, Ceballos says Guatemala’s apparel exports are poised to grow by more than 10% this year as buyers in the US – the destination for 80% of Guatemala’s apparel exports – seek to replace their purchases from China.

“To the extent that we can produce more, they are going to buy more from us because it is starting to become cheaper than buying from China,” when also factoring in the lower operating costs there compared with Guatemala. “It is totally feasible to grow because the demand is there – the US is such a big market.”

Guatemala’s clothing and textile exports grew 2.6% to US$1.68bn in 2018 from US$1.54bn in 2017, according to the country’s central bank.

As reported on just-style last month, a rising number of fashion brands sourcing in China and Asia are setting their sights on Guatemala and the region, boosting investment and helping lift this year’s growth outlook.