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By Marco Dell’Osso
 At Tissue World
in Nice earlier
this year, Esko
U u t e l a m a d e t h e
encouraging prediction that
growth is still expected in
global tissue consumption.
The five years from 2006,
he said, would show annual
growth of around 3.8%/yr,
and he expects it to be even
better in the following fiveyear
period – nearly 4% in
fact. Uutela predicts
stronger growth in the
domestic than the
professional market.
There is expected to be
considerable variation by
region, however. Japan and
North America will creep
ahead by a mere 1%, while
Eastern Europe, China and
the Middle East can expect
close to 8%. In tonnage
terms, of course, China is
way ahead of any other
country in growth
expectations.
There are certainly large regions in
the world where the tissue market is
mature, but with 40% of the world’s
population still living without a
bathroom, the tissue market as a whole
is anything but mature – in many ways
it is still in its infancy.
So now is the time to be grateful
we do not make automobiles. We can
all put off the decision to buy a new car
but, fortunately for us, tissue is not a
deferrable purchase. Theoretically, our
industry is better placed to survive the
economic downturn than many others,
as long as it can remain profitable –
and that word “profitable” is the key
here.
No panic?
In times of economic downturn,
consumers are more careful with their spending. The danger is of an overreaction
to this by suppliers which
manifests itself in price wars, with
serious consequences for profitability.
Margins take time and effort to build,
but can be destroyed overnight. Private
label business is more vulnerable to
competitive price wars, not least
because retailers can use the pricing of
basic essentials, such as tissue, to retain
customers at the cost of margin. Of
course the retailer’s margin is not, on
the face of it, a concern for the supplier,
but downward price pressure does not
take long to work down the supply
chain.
Based on experience in recent years
with producers of both branded and
private label products, I would say that
brands and private label products are
coming closer together in their
aspirations, which is a good thing for
the industry. It is far better to invest in
a product and give people more reason
to buy it, than merely to
keep cutting margins and
see who pulls out first.
Cutting prices as a result
of reduced production
costs is a genuine
strategy, based on
intelligent investment
leading to competitive
advantage. But cutting
price merely to stay in the
game is not a winning
solution – it just creates
a downward spiral and
destroys margins across
the whole industry.
Of course
it is extremely difficult
for companies to act in
isolation. Whether
competitors are cutting
prices for the right or the
wrong reasons, it is hard
not to respond. One of the
greatest determining
factors for pricing is
capacity. This brings me
back to Esko Uutela and
another significant point which he made
during the conference in Nice. Based
on his predictions for demand compared
with announced capacity increases, the
industry will in many areas be running
at less than 90% of capacity for the next
two years, which is obviously not an
ideal situation. It underlines the
importance of investing in productive
efficiency, in technology which
minimizes downtime and enables
increased product differentiation, rather
than sheer output. With the inevitable
downward pressure on price which will
come about from the combined forces
of an economic downturn and excess
capacity, it has to be a priority for
companies to keep their costs per unit
of production to an absolute minimum.
The Middle East makes a useful casestudy,
because it is so autonomous in
terms of tissue production, but also
because it has some issues with capacity (see our articles on Egypt in this issue - Ed) Lower oil prices have
of course had an effect on
the region’s economy in
addition to the global
downturn, and consumers
have inevitably looked for
s a v i n g s . T h i s h a s
emphasised the need for
maximum productive
efficiency, and it is good to
note that the installed base
of tissue production
equipment in the region
becomes more advanced
every year. Nuqul Group
recently hit the 2000 m/min
mark with its two new 5.5
m tissue machines in Egypt
and Jordan, and Saudi Paper
has recently started up a new
5.5 m Metso machine
capable of more than 2000
m/min and with a capacity
of 60,000 tons/yr.
The adoption of
advanced technology is very
positive for the region, but
the capacity/demand ratio has proved to
be a particular challenge in the Middle
East, where production capacity as grown
faster than consumption, resulting in
operating rates of less than 80%. This
has to be the biggest issue facing the
region. It might mean that smaller, less
efficient mills will struggle to remain
competitive.
The Middle East has developed
strong niche markets, particularly in
boxed facial tissues, which account for
a major part of this region’s consumption.
Of course the hot climate has something
to do with this, but also the longestablished
practice of having facial
tissues in every house, office and car.
There is an encouraging level of
innovation, with scented and decorated
products on the rise. Local manufacturing
is helping to keep costs down and
spurring on the market to develop further.
Some individual company stories
make impressive reading. One of the
region’s leading players, FINE, which
is part of the Nuqul group, posted 20%
growth in 2008 behind strong sales of
its facial tissues and toilet rolls. Peter
Janho, the company’s chief area officer
for the Arabian Peninsula and Iran said
recently: "What we want to focus on in
2009 is to offer more tangible value for
our products which can lead to significant
savings. We also intend to further
enhance our customer services, and
create products which have high levels
of environmental friendliness."
It is not only in technology that the
Middle East can match the best which
mature Western markets have to offer.
Last year Abu Dhabi National Paper Mill
became the first tissue manufacturer in
the Middle East to be FSC Chain of
Custody certified. ADNPM has also
recently implemented a full Enterprise
Resource Planning system – a wise move
for any company but particularly one
such as ADNPM which has doubled its
capacity in the last couple of
years.
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Steady Long-Term Growth in Global Tissue Consumption is Expected to Continue
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Forecast Regional Growth Rates of Tissue Consumption 2006-2016
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Comparision of Regional Growth Rates of Tissue Consumption 1996-2006 vs 2006-2016
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Volume Growth of Tissue Consumption by World Region in 2006-2016
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In my opinion, the Middle East
has the potential to excite the
gloomiest forecaster but at an
industry level its ability to
control capacity will determine
whether it reaps the rewards it
deserves. At an individual
company level, the control of
cost per unit of production will
be the make-or-break factor.
From local to global
While there are issues
specific to the industries we
work in and serve and the
regions in which we operate,
the global economic outlook
still exerts the greatest
influence over our destiny. I
am not an economist, but stock
markets in the BRIC countries,
Brazil, Russia, India and China,
have shown signs of recovery
this year, and even the great
George Soros, a man who has no fears
about delivering bad news, said recently
“The economic freefall has been stopped,
the collapse of the financial system
averted.”
I wonder whether Soros just likes to
frighten us, but when you have lived
with the possibility that the world’s
financial system is on the brink of
collapse, to then be told that disaster has
been averted and we only have a crisis
to deal with seems like a great relief. I
believe the tissue industry is well-placed
to survive the current economic situation,
provided it continues to add value, invest
in productive efficiency and be mindful
not to dilute the benefits of demand
growth with excess capacity.
Marco Dell’Osso is Vice President
Sales & Marketing with Futura
Converting Lines based in Lucca,
Italy.
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