Operations Report

Hayat Kimya: setting a world beating pace for tissue expansion at home and abroad

With national demand increasing 12-15% a year, the Turkish innovator is also strategically placed to meet huge potential to its east

Paper group director Lütfi Aydin

I am barely returned from my visit to Hayat Kimya’s Izmit site near Istanbul when paper group director Lütfi Aydin e-mails with the impressively hot news. “We ran our Metso PM2 machine at 2,210m/ min continuously for a 24-hour period,” he says. “We produced 16 gsm toilet paper just using Co-gen energy from our plant, which produces electricity and generates steam and hot air for the tissue machine. We started the trial with Metso’s supervision and they confirm it was a World Speed Record for tissue machines.”

Nothing could better demonstrate the company’s philosophy of challenging itself and continually pushing forward across the whole of its ambitious market strategy. During the next four years, for example, it will take advantage of Turkey’s legendary geographical and economic gateway location to East and West. Expansion plans include: the startup of a tissue production site in south east Turkey; the startup of its tissue production site in Iran; further consolidation of its presence in the Turkish tissue and private label market while moving into the Away from Home (AfH) market.

It has even found time to experiment with a six-ply tissue. “It is very difficult to create new and innovative products in the tissue market, but we are putting ourselves out there to do so,” says Aydin.

All this, and Hayat Kimya Tissue Project has yet to see its 8th anniversary. It is part of the Hayat Group which was established in 1938 and which primarily operates in the chemicals, hygienic products, paper and wood-based industries. In 2004, the first paper machine contract was signed. Tissue production was started in 2006 and headed up by Aydin. By 2006, PM1 from PMT was up and running and by the end of that year, Aydin says the business reached second place in the Turkish tissue market. In 2009, it bought a second paper machine, PM2, a Metso Advantage DCT 200 TS tissue production line that started up in December 2010. Aydin says this boost in production meant Hayat has been the biggest tissue producer in Turkey.

It has three tissue brands that cover three price ranges, and it has also launched threeply bath tissue and kitchen towel, as well as bi-sided tissue and towel products that have a different embossing pattern on each side of the plied sheet. “Turkish people have high expectations for toilet paper,” Aydin says. “They want high absorbency and quality at the right price, so we created three-ply products. This means they can use less as it has a high absorbency. We were unique in producing this here, but our competitors and also private label companies have started to follow suit. The market is very competitive and we must improve our products continuously in order to be the best customer oriented tissue producer.”

‘TISSUE USE IS CULTURAL’

The Turkish tissue market, as with its economy as a whole, is robust. The growing economy as well as increasing westernisation is producing a lot of potential for the tissue sector. The country has a capacity of 600,000 tpy with an actual production of 462,000 tonnes in 2011 but, as yet, there is only demand for 370,000 tonnes, according to Aydin. However, that demand is set to change. “Tissue use here is cultural,” he says. “Around Istanbul, tissue consumption is eight kilos per capita, while in the middle of Turkey it is five kilos per capita and in eastern Turkey it’s less than one kilo. That’s a lot of potential. Generally, we are seeing an increase in demand for tissue products of between 12-15% year on year, and there is nothing to say this increase will slow down over the next few years. But there could be a slow down of new investments due to existing high production capacity and it will take some years to absorb this overcapacity.”

Aydın says there are rumors that the big European tissue producers are also interested in entering the Turkish market. But Aydin doesn’t believe they will buy in for at least two to three years, and he aims to have strengthened his position by then: “I’m sure they will be soon after that, but by then our third machine will be up and running.”

Private label is also increasing very rapidly in Turkey. Aydin says it takes up around 35-40% of the total Turkish tissue market consumption, and every year this is increasing between 15-20%. “Of course this isn’t good news for us because we have our own brands. AfH is also increasing by around 15% year on year. I believe that in the near future, private label will increase by 50- 55%. It is a big competitor here.” Generally, there is also an increasing demand for waste paper and de-inked products.

Co-gen plant consisting of 2×7.5MW gas turbines integrated with TM2

One area that hasn’t yet taken off for the Turkish consumer is demand for environmental credentials in their tissue products. Aydin says: “In the next few years I believe it will be of more significance here and that Turkish users will be asking for environmentally certified products.”

Aydin says Hayat Kimya became FSCCOC certified in 2011 in order to be ready for future demand from the Turkish people and the region, as well as being a strong and reliable alternative for the countries which are already consuming FSC certified products.

“The same goes for de-inking, people here are starting to think about waste paper, but there is no demand for it yet because Turkish women don’t want to use this product. This will change in the near future.”

Hayat has also largely responded to the issues facing Turkish producers by increasingly exporting to the East, including Iran, Ukraine and Azerbaijan, and also to the West. It exports its jumbo rolls into Europe, including the Ukraine, England and Greece. “Our European customers are happy because Turkey produces affordable but high quality tissue products. But this volume of tissue production in the Turkish market certainly means that there is very strong competition between key players.”

It’s not all plain sailing for the Turkish tissue market either. For the low capacity Turkish tissue producers, Aydin says that life will get more difficult. “Especially with the tough competition. Our company doesn’t want to buy the smaller companies because the production costs aren’t competitive in the near future. But I think Turkey needs to see some smaller players merging or being acquired by the larger players, or else there will be no chance for them to survive. They are being hit by labour costs, energy costs, and they don’t have the same control as the larger players.”

Raw material price increases have also been an issue. “Some times we have to tolerate these inevitable increases because of the competition.” One way the business has been able to save on energy costs is by investing in a gas turbine generator that produces gas directly to the tissue machine to dry the tissue, and then transferring to the boiler to generate steam. “Using natural gas to generate our energy requirements helps us with our energy costs,” he says. “But if pulp prices are increasing, we can’t do anything about that and have to tolerate it, just as with the rest of the market.”

Across the Turkish economy, inflation has increased to 10.4% in March and this of course affects how people use tissue. With Turkey’s location on the edge of Europe, the country has also been on the edge of the eurozone economics. However, from the companies visited for Tissue World’s Turkey country report, it seems that the country as a whole has benefited from its detachment from eurozone economics.

World speed record tissue machine at Hayat Kimya. TM2 is a Metso Advantage DCT 200TSPhotographic coverage by Ingemar Myren

Aydin says the company hasn’t directly been impacted on by this, or by events in Greece. “We have no finished product sales in the eurozone. Obviously with our jumbo sales there, when the euro is weak that’s not good for us. This certainly affects us,” he says. “The recent economic turmoil in Greece hasn’t had a big impact on our sales either, as we only had a minor sales channel into the country.” He adds that during Turkey’s economic crises of 2001 and 2008 however, the sector wasn’t especially affected. “Tissue isn’t a luxury product, it’s about cultural habits, but we still have a lot to do to match up to European consumption.”

PROJECTS IN THE PIPELINE

Hayat is looking to take full advantage of the potential for growth in south eastern Turkey, and plans to have its third tissue mill started up there in near future. The region is also close to Iraq and Syria. “We hope Damascus will stabilise and will then need tissue,” he adds. “When it does, we will extend our production to another region.”

A $50m factory for the production of tissue products is already under construction at Zencan in Iran. “There’s a significant amount of potential in Iran”, Aydin says. “Some 85,000 tonnes are consumed each year but only 35,000 tonnes are currently produced there, the rest of which is imported, largely from Indonesia and from a small amount of local groups. There is also a custom tax of 15%, so once we are up and running we will have an advantage by starting production there.” Tissue demand in Iran is increasing around 10% every year. “Of course there are difficulties there”, he adds, “but we are doing this step by step and I hope we will reach our target of being in the Iranian market next year. That will then open more doors, and we will look to also enter the Azerbaijan tissue market with our finished products in the near future.”

The company’s third project is in Tataristan, Russia, and Aydin is currently speaking with Voith, Andritz and Metso to decide on the machine, with startup of a new site expected for middle of 2015. He says: “We would like to understand if there is something new in the machine market, as next November we would like to make an order for Russia. We will be investing in deinking in Russia.” The Russian market has huge potential, and is already using waste paper. “Some 80% of toilet paper on the shelves is from de-inking, and we would like to follow the market’s progress there. But it is also difficult to find waste paper there and the rules in Russia are very different from ours, so again we are learning. But we cannot ignore that the potential is huge. Toilet paper rolls there are low quality, and people there would like the option of higher quality.”

All of which makes it clear the company is going to be very busy over the next few years. The Tataristan project is expected to start tissue production in 2015, while the new investment in Turkey is expected to start tissue production soon after realisation of the Russian project. Both machines in these projects will be integrated with a 120,000 tpy DIP-line. By the end of 2016 Hayat Kimya expects to operate five large tissue machines with a total production capacity of 345,000 tpy, and will no doubt be further challenging its own World Speed Record. “We would like to be number one in Turkey,” Aydin says. “And we will continue to invest and maintain our strong growth strategy here and abroad.”