One of the innovations of this year’s show, apart
from the theme of the conference, was the introduction
of a management and marketing day. It turned out to be
one of the highlights. Partly because it addressed some
of the critical issues facing the industry in the years
ahead. Partly because of the outstandingly high caliber
of the speakers, who included industry leaders from Europe,
America and Asia. And partly because it attracted to
the show more senior managers, adding a new dimension
to the interest.
Alberto Cappellini’s keynote paper is covered elsewhere
in this issue(Marketissues, page 5). He was followed
on day one of the conference by Peter Irish, vice president
sales and marketing with SCA Hygiene Products, who reinforced
Cappellini’s message, calling on the industry to
take a fresh approach to communicating with consumers.
There is more to the market than price, softness and
strength, he said. “In fact, these are only moderately
important from a consumer standpoint.” In Europe,
a failure to understand consumers’ many and complex
needs is one of the key reasons why private label dominates
the market to such a degree.
Irish pointed out that, whereas in the US brands account
for 80% of total consumption, in Western Europe is is
34%. In no country in Europe is it much above half, and
in many it is well below a third (14% in Germany, 22%
in France, for example).
Not only does this cut margins, it also leads to lower
tonnage consumption. “The inappropriate focus on
low pricing, softness and strength mean that European
consumer tissue is largely missing the value growth opportunities
being exploited in the US, for example, where per capita
consumption is 50% higher than in Western Europe.”
The industry “needs to reinvent itself” as
others have done successfully in the past. For example,
analysis of towel consumption in the US and France shows
that for some uses US consumers use 2-3 times as much.
French households use towel to wipe up spilled liquids
(81%) or instead of dinner napkins (73%). But while in
the US three quarters of consumers use towel for cleaning
and drying work surfaces and sinks, cleaning mirrors
and windows, in France the corresponding figure is around
40%.
If French consumers could be convinced to use towel at
US levels – 4.4 kg/yr instead of 1.7 kg – the
market would grow by €270 million. Too often, though,
instead of truly innovating, producers play catch-up
with competitors which leads to “non-beneficial
Capex demand for fast followers”. Irish took the
example of ALDI’s Toipa Premium three-ply. Over
the past 12 years, colour printing, nested, ‘mull’ and
edge embossing, new rewinders, packer, palletizer and
stretchers have been added at a cost of €5.5 million
or about €24/tonne of production. “Who is
really benefiting from it?” Irish asks.
By more carefully identifying consumer needs – eg
in hygiene, convenience, efficiency, personalization – “and
there are plenty more” – and by taking into
account the wide mix of consumer types – from rational
to joyful – producers can create new consumer needs. “But
do not expect retailers or private label to lead the
industry towards value growth – brands have to
do it.”
North America’s market “is characterized
by rather balanced developments, based on high consolidation
of the industry and innovativeness, while Europe continues
to suffer from overcapacity as a result of the fragmented
industry structure,” according to Esko Uutela,
president of EU Consulting. “In North America,
however, there are some clouds on the horizon: new capacities
being built by converters and new entrepreneurs and,
likely even more threatening, tissue imports from Asia.” (More
on North America in our North America focus in this issue).
CHINA'S IMMINENT SURPLUS
One of those clouds that Uutela identified is without
a doubt China. For many years now, China has stunned
economies around the world with the pace of its growth
and the improvement in the quality of its output. It
has also developed its production capacity in many
industries faster than growth in domestic demand, with
the result that Chinese products, from textiles to
photocopy paper are a commonplace of markets everywhere.
Tissue could be next in line.
Cao Zhen Lei, president of China National Household Paper
Industry Association, presented statistics to make competitors
in potential export target countries quake in their boots.
In recent years, the Chinese economy has continued to
grow at double-digit rates. In 2006, the GDP reached
20,940 billion Yuan (US$2700 billion), up 10.7% over
the previous year, Cao said.
At the same time, the tissue industry in China also continues
to grow rapidly. It is estimated that the total production
of tissue paper reached about 4.22 million tonnes and
consumption about 3.98 million tonnes in 2006, in both
cases 8% above the previous year’s level. Annual
average per capita consumption is still only about 3kg,
though this hides huge differences between urban centers
and rural areas. Shanghai’s per capita consumption
is estimated at around 11 kg, well up to western levels,
while in China’s vast underdeveloped hinterland
it is extremely low. Total sales are about 34 billion
Yuan (US$ 4.3 billion).
Today, the tissue market in China is still composed of
a number of manufacturers. The main nation-wide brands
include Vinda, Mind Act Upon Mind, Virjoy, Scott, May
Flower, Jierou, Clear Wind, Jieyun, etc. The market for
middle and low-grade products is served by regional brands
due to the cost of logistics. Parent roll manufacturers
are relatively concentrated. In 2005, the top 10 tissue
manufacturers occupied a 25% market share in China.
There have been a lot of new installations in the last
few years in China: about 100 new tissue tissue machines.
Although most of these are small domestic cylinder former
machines, there are also over 10 crescent former tissue
machines and about 20 BF type tissue machines.
As shown in the Table, the top four tissue manufacturers
are all expanding their production capacity, adding an
estimated 1.1 million tones in the next year or so. This “expansion
of large tissue manufacturers will promote industry concentration,
improved equipment and technology, improve product quality,
reduce energy consumption and decrease pollution and
environmental impact,” said Mr Cao.
He did not say where all the new tonnage will be sold.
Chinese exports may be expected to increase sharply in
the short term.
EMERGING MARKETS
Emerging markets generally grow quickly in percentage
terms but, because the base is small, a modest capital
investment can quickly create oversupply. Some of the
world’s emerging markets are indeed suffering from
oversupply, according to RISI vice president Andrew Battista.
Over the period to 2009, capacity and demand growth in
most regions is expected to be reasonably in balance,
but in Eastern Europe and to a far greater extent the
Middle East growth in supply will greatly exceed that
in demand.
Interestingly, given Cao’s expansion list, Battista
does not see Chinese capacity dramatically outstripping
demand: capacity growth of about 1.2 million tonnes,
demand perhaps 100,000 tonnes less in the three years.
Although capacity will outpace demand this year, he said,
in 2008-09 this will be reversed. So any export surplus
will be short-lived.
One of the facts to emerge from Battista’s paper
was that, while in general per capita tissue demand grows
in line with GDP, there are striking exceptions. The
chart on Emerging tissue demand vs income shows a scattergun
distribution of nations. Note, particularly, that Chile
and Mexico (green circles on the far right of the chart)
have tissue consumption nearly 10 times that of Turkey,
the much smaller yellow circle on the left. This is despite
the fact that the latter has GDP per capita only 20-30%
lower.
In the Middle East and North Africa, capacity is expected
to grow by almost 300,000 tonnes in the next five years.
Demand, on the other hand, will grow by an estimated
130,000 tonnes, according to Salim W Karadsheh, CEO of
Nuqul Group.
What will happen to the surplus? Hard to say, but “mills
depending on export markets will be disappointed,” according
to Karadsheh. “There is a clear absence of leadership
in the region,” he said. “Global players
are shying away from entering this war risk zone and
smaller players cannot afford expanding the market through
strong brands, marketing and innovation.
“Mills following a secondary fiber strategy will be disappointed, too.
As a result of the rising demand, limited supply and tightening regulation,
margins in wastre paper are likely to erode over coming years. Returns on investment
will diminish as a result and new investment is likely to come to a halt.
“The tissue industry is not reaping the benefits of the enviable growth
rates. It will have to reform but the companies that survive will eventually
emerge – a few years later – with a good lesson learned and in
better shape.” To complete the management conference, the European Tissue
Symposium chairman Roberto Berardi outlined its recent capacity survey and
the work of the Tissue Growth Task Force. Three members of the Task Force presented
case histories demonstrating innovation in their own organizations.
The conference was rounded off with presentations from
three consultants, who looked at changing business models,
FMCG packaging, and the changing face of the tissue business.
TECHNICAL CONFERENCE
Following on from the management conference, Tissue World
continued with its traditional technical conference.
This was divided into six main sessions covering different
sectors of the business: papermaking developments; process
control; testing and maintenance; converting, wrapping
and logistics; energy issues; chemicals, stock preparation,
pulp and fiber; and Yankee dryer operations.
Over the months ahead, Tissue World magazine will look
in more detail at some of the ideas presented in these
papers. For information on how to obtain a full set of
papers, contact Eileen Tan at CMP Asia: eileen_tan@cmpasia.com.sg. TW
