By Esko Uutela
European
tissue consumption reached 6.9 million tons in 2005, an
increase of close to 2.5 million since 1993. Market growth
has averaged 3.7 percent/year during this 12-year period,
or some 205,000 tpy in terms of volume. This long-term
growth, corresponding to three new 5.4-5.5 m trim or six
new 2.7-2.8 m trim tissue machines annually, has attracted
tissue companies to make new investments. The growth has
been fairly stable, slowing down only very marginally
(3.7 percent/year) in 2000-2005 in comparison to the period
1993-2000 (3.8 percent/year). There has been only some
variation in the pace of growth from year to year.
EASTERN AND SOUTHERN
EUROPE INCREASINGLY IMPORTANT
Central
Europe (incl. British Isles) accounted in 2005 for 43
percent (47 percent in 1993) of European tissue consumption,
followed by Southern Europe (just over 36 percent - it
was less than 36 percent in 1993), Eastern Europe (14-15
percent vs. 9-10 percent in 1993) and Northern Europe
(6 percent vs. 7-8 percent in 1993). The relative importance
of Eastern and Southern Europe is growing, contributing
increasingly to the total European growth. Eastern European
demand has grown fastest in the past few years, and the
total market size has already exceeded one million tonnes.
In terms of volume growth, Southern Europe has recorded
a slightly larger increase than Central Europe, in spite
of the fact that Europe’s two largest markets, Germany
and the UK, are in the Central European region and that
they experienced a rapid market expansion phase in the
late 1990s. But in the last few years, these two main
European markets have shown signs of maturation and growth
rates have remained low.
EASTERN EUROPEAN MARKETS IN A “TAKE-OFF” PHASE
Eastern European tissue markets have shown very strong
growth in recent years, averaging 8.6 percent/year since
2000. Volume growth corresponds roughly to one large tissue
machine per year, indicating that in spite of good growth,
the opportunities for major investments are still restricted
by the small market size of individual countries.
The ex-Soviet region and southern Balkan Peninsula have
recently recorded the highest relative growth rates in
Europe. Russia and Poland accounted for almost half of
the total volume growth in Eastern Europe in 2000-2005.
Market growth in Romania and the Ukraine is also to be
noted. But in the vast majority of Eastern European countries
tissue consumption is so small that an investment in a
tissue PM of any reasonable size is not possible without
substantial exports. This increases project risk, particularly
in cases where the investor has no or little experience
of international tissue markets and potential clientele
for exports.
Eastern European markets are currently in an interesting
development phase. The new EU members – the Baltic
countries, Poland, the Czech and Slovak Republics, Hungary
and Slovenia, as well as recent newcomers Bulgaria and
Romania – are expected to integrate quickly with
the EU in all development areas, including the tissue
business. It will certainly take several years before
their per capita consumption of tissue is at an average
European level – with the exception of Slovenia
already close to the average – but increases in
penetration levels of tissue products other than toilet
paper are expected to be very substantial in the coming
few years, as well as quality upgrades. This will mean
major growth potential within the next 5-10 years.
COMPETITIVE PRESSURES ON WESTERN EUROPE
Western European tissue markets have been extremely competitive
during the past five years and this situation seems likely
to continue in the near future. There have been too many
capacity expansions at short intervals by several companies,
and in spite of rationalisation efforts by the main players,
the net capacity increase continues to be at too high
a level in comparison to demand growth. In addition, competitive
supplies from Eastern Europe, the Middle East/North Africa
region, and even China and Asia/Far East, have kept the
situation challenging for all market participants. Margins
in the consumer tissue business have suffered most and
they are far below the North American level.
The high share of retailer labels in the Central European
tissue business has also been considered as one of the
main reasons for the low profitability of the European
consumer tissue business. According to PLMA reports, retailer
labels accounted in volume terms for more than 80 percent
of kitchen towel sales in both Germany and Belgium in
2005, despite that fact that there are some strong company
brands available in these countries. This development
has certainly been a major contributing factor to the
current situation. In his keynote speech at Tissue World
Nice 2005, Jim Lafferty of Procter & Gamble illustrated
very well the threats of product “commoditization”
for the tissue industry and emphasized the importance
of keeping the business in the suppliers’ rather
than retailers’ hands.
In Europe has been explained by many factors, including
the degree of retail consolidation, higher margins in
retailer label than branded product sales, popularity
of discounters selling low price-point products, price
sensitivity of consumers, insufficient promotion of brands,
image building by retailers through their own labels,
fragmented national markets complicating pan-European
branding, and the willingness of European (particularly
Italian) mills to produce retailer labels. But we see
limited possibilities for tissue companies to swim upstream,
and Europe is likely to remain the “promised land”
of retailer labels.
DEMAND PROSPECTS
Europe’s
tissue consumption is expected to continue its stable
growth during the next 8-9 years and approach the benchmark
of 10 million tonnes by 2015. Average growth rate between
2005 and 2015 is expected to be some 3.5 percent/year,
slightly down from 3.7 percent/year recorded in 2000-2005.
But regionally the growth rates will be rather different:
- Northern Europe +1.8%/a
- Central Europe + British Isles +2.6%/a
- Southern Europe +3.2%/a
- Eastern Europe +7.2%/a
Total volume growth will reach some 2.9 million tonnes
between 2005 and 2015. This means that in the long term
several new investments will be needed in the European
tissue industry. Regionally, the highest tissue volume
growth is expected to be in Eastern Europe with about
one million tonnes of additional demand, followed by Southern
Europe (slightly more than 0.9 million tonnes) and Central
Europe (slightly less than 0.9 million tonnes).
PROJECT AND SUPPLY OUTLOOK
We have listed some major new tissue projects in the accompanying
table. It is to be noted that the list does not include
smaller rebuilds, restarts or closures but only the main
announced new expansions. The list is not claimed to be
all inclusive and excludes confidential projects.
In Western Europe, the main recent capacity addition comes
through Sofidel’s three new tissue machines, which
came on stream within a fourmonth period in late 2006,
adding some 150,000 tpy new tissue capacity in the UK,
Germany and Spain. Spain is also the target of major new
investments by Georgia-Pacific, SCA and the joint venture
between the Spanish Gomá-Camps and German Wepa.
In addition, there are a couple of smaller investments
by local companies. The Spanish market situation is characterized
by serious overcapacity, which will continue for at least
2-3 years.
There have been also a number of closures of old and inefficient
machines in Western Europe, which reduce the net effect
of new capacity to some extent. During 2006, SCA closed
four machines in Norway, the Netherlands and Portugal
with a total capacity reduction of some 48-49,000 tpy
in 2006; Kruger Tissue stopped its 15,000 tpy mill in
Bolton, UK; and Papierfabrik Horgen closed its 35,000
tpy mill in Switzerland.
Georgia-Pacific closed its 20,000 tpy PM in Kunheim, France
in spring 2006 and is negotiating with mill personnel
the closure of the 25-27,000 tpy PM 8 at the Nokia mill
in Finland. Kimberly-Clark has also rationalised its capacities
but sold mills to new owners rather than closed them permanently.
The latest news from Italy is that Cartiera Fenili, a
private company selling mainly parent reels, which invested
in a new Recard machine in 2005, had to close its 38,000
tpy mill in Lucca in late 2006 because of financial difficulties
and is now for sale. In Eastern Europe, Russia suffered
in the past couple of years from tight supply of tissue
parent reels, but now there are four new expansion investments
ongoing, and more are likely to follow soon. This will
help to balance the demand/supply situation – the
rapid growth in the Russian economy has also boosted tissue
demand in the country stronger than expected.
The largest single project in Eastern Europe is however
IC Tronchetti’s second PM for its Kostrzyn mill
in Poland, a project which was finally confirmed in late
January 2007. The new machines of Higi Papirsoft in Hungary
and Kostenez in Bulgaria also have major regional importance.
Local smaller/medium-size producers in Poland have had
project plans, but many of them have been delayed or postponed
because of financing problems as well as tissue oversupply
in the country. TW
Esko Uutela is Principal of EU Consulting, Starnberg,
Germany and publisher of “World Tissue Business
Monitor” since 1999. He can be contacted via email:
euco.uutela@t-online.de
; Phone: +49-8151- 29193; Fax: +49-8151-29183.
