Uncertainties across manufacturing, energy costs, the post-Covid recovery and politics mean Germany is still searching for a stable way forward. Report by Bruce Janda, Senior Consultant, ResourceWise.
German manufacturing is still struggling to establish its “new normal” following the twin shocks of the pandemic and the war in Ukraine. German auto manufacturing garners most of the headlines due to the threat of low-cost Chinese EV imports potentially disrupting a significant source of employment and global exports. However, higher energy costs, inflation-driven labour demands, and an expensive transition to green and renewable energy have also contributed to the industrial anxiety affecting all German manufacturing, including the tissue business.
These same issues impact German tissue consumers, complicating demand forecasts. The consumer tissue interests highlighted in the literature include:
Increased emphasis on health and hygiene, especially following Covid-19.
Rising demand for high-quality, soft, and sanitary toilet paper.
Growing interest in premium products.
Shift towards private labels and value-driven purchasing due to economic uncertainties.
These consumer interests are somewhat self-contradictory (higher quality and lower costs), making demand forecasting challenging when the German tissue mills are struggling with an energy transition.
The World Factbook estimates that Germany’s population growth due to immigration will decrease to -0.12% in 2024. The population trend is shown in the yellow bars in Figure 1. Population growth appears to have slowed again, as slower immigration is not quite replacing the effect of very low birth rates. However, GDP per person at PPP (purchasing power parity), shown in the blue line, has continued to rise, indicating growing consumer spending power. The average German consumer probably doesn’t feel enriched in the current environment.
German unemployment has stabilised between 3.0% and 3.5% since 2017, as shown by the yellow bars in Figure 2. Nevertheless, the inflation shock of 2022 (9%) continues to impact consumers as prices remain elevated despite a decline in the inflation rate. The blue line indicates the inflation trend, with the low 2024 rate still being an estimate.
The German tissue trade has remained relatively stable throughout the 17-year trend period. Figure 3 illustrates Germany’s tissue imports. The key supplier countries are all close to Germany’s borders, including Austria, France, Italy, the Netherlands, Poland, and Sweden. Poland has emerged as the largest source of tissue imports. The 2024 data shown may be revised as the trade data is finalised after year end.
The trend of tissue exports from Germany is shown in Figure 4, which includes many of the same countries that export tissue to Germany. The import to export ratio is approximately balanced. The volume of tissue exported or imported constitutes about 40% of the capacity of the German tissue industry. German tissue companies are certainly monitoring this ratio.
The cautious nature of German tissue makers is best illustrated by the deliberate addition of new tissue machine capacity as existing machines are replaced. This is detailed in Table 1. A net gain of only two machines is anticipated through 2027, with no new tissue mill sites expected during this time. Tissue makers continue to optimise existing capacity. The forecasted compound annual growth rate (CAGR) from 2007 to 2027 is a mere 0.51%.
The German tissue supply is shown in Figure 5. Recovered paper recycling comprises 31% of total tissue production, with some pre-consumer recycling included in the “all other” category. Nearly a quarter of the total fibre is sourced from eucalyptus imports. Softwood and hardwood pulps from the North account for 40% of the total Figure 5: German Tissue Furnish
Although recycled fibre accounts for only 31% of the total furnish, more than half of German tissue mills incorporate some recycled fibre. This is illustrated in Figure 6. A smaller proportion of German tissue mills include some virgin fibre integration.
Figure 7 shows the application of these fibres to tissue product types. Consumer Bath Tissue is the largest product format, followed by Consumer Towels and Facial tissue. These consumer grades contain a significant portion of eucalyptus fibre for softness. However, these bar segments represent overall averages, and much more eucalyptus would be expected in the premium grades than in the economy grades.
Germany has several advanced technology tissue machines that produce commercial towels, consumer towels, and consumer facial tissues, as illustrated in Figure 8. Unlike North America, the bath tissue format in Germany does not utilise advanced structured tissue technology. This is because the significantly higher strengths and multiple plies (up to 4-ply) needed for bath tissue in Germany reduce the necessity for advanced technology to enhance absorbency and secure loose fibres, as is the case in North America. The demand for advanced technology to achieve maximum absorbency per gram of fibre in a towel is universal, and we observe similar penetration of advanced technology in commercial towelling used for hand drying as we do in North America.
A comparison set of Spain, France, Italy, Poland, Sweden, and the Netherlands was selected for a technical analysis of nearby tissue trading partners. Figure 9 illustrates this comparison, plotting the average technical age of each country’s machines on the X-axis against the average tissue machine line speed on the Y-axis. The size of each bubble represents the total capacity of each producing country.
Germany’s machines, along with those of Spain and France, are, on average, relatively middle-aged but operate at high line speeds. Conversely, the Netherlands’ machines are considerably slower and significantly older. The high energy and pulp costs faced by Germany and most of its peers make it challenging to generate cash for asset upgrades. However, asset upgrades for more productive machines that can use fibre and energy more efficiently are necessary to remain competitive.
Figure 10 compares the same countries with Germany, highlighting the average cash cost of producing a ton of tissue. The height of each bar reflects the production cash cost for each country, while the width indicates their relative tissue capacity. Furthermore, the coloured segments within each bar represent the costs involved, including raw fibre materials, market pulp, chemicals, energy, labour, materials, overhead, and any credits.
Sweden is the lowest-cost producer, while France is the highest-cost producer. Energy costs are the lowest in Sweden, partly due to the use of biomass energy in pulping and waste boilers, which are deemed carbon neutral. Germany experiences the highest energy costs, as indicated by the width of the yellow band. Poland, Italy, and Spain have the lowest labour costs. Germany and the Netherlands benefit from greater fibre integration, as seen from the raw material fibre represented in the bottom bar of the columns, compared to the higher costs associated with baled pulps in the second bar from the bottom.
Figure 11 shows a snapshot of the average tissue machine and mill viability. In this case, the cost of the bar height is determined by viability factors, where cost is only one of eight considered. The legend shows these factors as capital required, cost, grade risk, internal company risk, competitiveness, size, technical age, and tons per unit trim.
Spain has the best (lowest) viability score compared to the Netherlands, which is notable as a relative risk. Germany ranks in the middle of this chart. If Germany’s costs were lower, it would align closely with Spain and Poland in terms of viability.
Figure 12 benchmarks carbon emissions directly using Scope 1 (fuel burned on-site) and Scope 2 (electricity purchases). This chart compares fuel in units (GJ) to costs. Sweden is significantly below the average emission rate per ton, while Germany is slightly above it. Poland shows very high carbon emissions per ton of tissue produced, largely due to its coal-fired electrical grid (Scope 2). Germany demonstrates relatively efficient on-site fuel use for power, hot air, and steam (bottom bar segment). The opportunity for Germany is to reduce the significant rate of Scope 2 electrical grid emissions as high-carbon fuels are phased out and replaced with lower-carbon natural gas and zero-carbon renewables. Sweden is maximising its abundant wood resources to lower Scope 2 emissions.
Scope 3 emissions are upstream and downstream from tissue production, including fibre production in market pulps. This could be significant if included in the carbon emission measurement. It would benefit advanced tissue processes if they reduced the basis weight and carbon content of the pulp required when measured on a consumer-use basis. It would also penalise tissue paper shipped from exporters halfway around the globe.
Germany’s electric grid costs and carbon inefficiencies continue to affect its tissue business. German manufacturers have been at the forefront of exploring alternative fuels like hydrogen and increasing electrification on-site. Unfortunately, German tissue mills are unable to address the issues with the country’s electric grid.
Germany’s tissue business is experiencing slow growth, with machine replacements and upgrades centred on cost and quality improvements. The country is an active trader in tissue with its neighbours but is currently at a disadvantage due to higher energy costs and carbon emissions compared to the trade group average. This column was optimistic for Germany’s competitive position improvement two years ago. That improvement has not materialised.
A detailed understanding of tissue producers and their individual machines is crucial for analysing the competitive landscape. This article presents an overview of the current tissue industry in Germany. Fluctuations in fibre prices, exchange rates, and environmental regulations create both opportunities and challenges for industry participants. Moreover, changes in ownership and consolidations are expected to persist among tissue mills in Germany, while investments in tissue-making capacity from neighbouring countries may impact imports and exports.
