Will growing exports, upgrades on mills, on-site costs and low carbon energy be enough to offset rising again inflation? Analysis by Bruce Janda, Senior Consultant, ResourceWise.
As a major exporter, the Republic of Türkiye continues to be of significant interest in the global tissue business. This column has reviewed Türkiye about every two years since at least 2018. This year, we are adopting the new preferred spelling as requested by the country. However, the legacy English spelling in maps and computer-generated charts within this report has not yet been updated.
A recurring theme in the last three reports highlights Türkiye’s location, culture, and history as vital to trade and the development of the tissue industry. Positioned at the crossroads of Southeastern Europe and Southwestern Asia, the country borders the Black Sea, the Aegean Sea, and the Mediterranean Sea. As a result, Türkiye has served as a historical bridge in trade between regions and cultures. This position also provided a treaty obligation to control warship entry to the Black Sea during the Ukraine war.
During the pandemic, domestic inflation emerged as a concern, but it significantly accelerated during the recovery phase. While the low exchange value of the lira was identified as a positive factor for export pricing, the resultant cost of imported virgin pulp used in most exports remains a concern. Figure 3 shows updated details of the inflation trend.
Figure 1 shows Türkiye’s central location and tissue production sites. There are 14 tissue mills marked as non-integrated or recycled integrated. These sites are owned by one of ten private domestic producing companies.
Türkiye’s population continues to grow at a slow, steady rate, estimated at 0.61% in 2024, ranking 139th in the global population growth rate. Real GDP per capita, as expressed by purchasing power parity (PPP), is ranked 71st in the world. Real GDP is growing at about 4.52% (2023). The detailed trends for population and GDP/capita (PPP) are shown in Figure 2.
Inflation concerns expressed in this column in 2018 and 2020 now seem like minor blips compared to the situation reported in 2022, as illustrated in Figure 3. Inflation was estimated at 53.9% in 2023, down from 72.3% in 2022. However, inflation appears to have increased again to about 60% so far in 2024. Unemployment has hovered around 10% over the past three years. These trends should provide significant headwinds for further domestic tissue consumption and may affect the business climate for support of export-focused business investments.
Figure 4 illustrates Türkiye’s tissue import trend, while Figure 5 shows the export trend. In 2023, Türkiye’s tissue exports exceeded imports by about 28 times, demonstrating its commitment and capability to the tissue export business. Although imports slowed until 2023, this blip is insignificant compared to the rate of exports. Germany and Russia provided about two-thirds of the tissue imports in 2023. This is the first time Russia has shown up as an exporter in this trend. Egypt, Greece, Iran, Italy, Japan, Saudi Arabia, and Sweden have been frequent tissue sources of Türkiye’s imports.
Türkiye’s tissue exports began to grow in 2011 and have continued to do so through 2023. The United Kingdom is its largest customer, accounting for 30-35% of the total export volume since 2020. Greece is the next most significant customer, with Bulgaria, Iran, Ukraine, and the United States as notable customers over the trend period. Of considerable note is the growth of the “all other” category from about 30% to 68% in 2023. This growth in customers with volume shares under 8% represents a significant diversification in the customer risk for Türkiye’s producers.
The development of tissue production capacity supported this net trade growth. The waterfall chart in Figure 6 shows the change in the number of operating tissue machines. The net number of tissue machines increased by 13 from 2007 through the 2027 forecast. A wider and faster machine often replaced a smaller, less efficient machine. In addition, numerous capacity improvements were made to existing machines. The net result is a cumulative average growth rate (CAGR) of 8.1% from 2007 forecast through 2027. However, the announced capacity changes from 2025 through 2027 have a CAGR of only 1.36%. Only one new machine is expected to be introduced during this period. Although, potential competitors have more projects coming, such as Saudia Arabia or lead customers in the United Kingdom.
Figure 7 summarises tissue finished product production versus fibre sources used. Consumer bath is the most significant grade, more than the subsequent two grades combined. Eucalyptus and tropical hardwood used in this grade suggests a focus on softness and possibly exports. All consumer grades use southern and northern bleached softwood pulps for strength and bulk generation. Recycled fibre tends to be used to produce commercial towelling.
Figure 8 shows the site types categorized by fibre integration. Less than a quarter of the tissue production sites have some recycled fibre integration, and no virgin fibre integrated sites exist.
A comparative analysis of tissue-producing countries was conducted using Türkiye’s tissue trade partners. This set includes Brazil, Bulgaria, Greece, Indonesia, and the United Kingdom. This comparison set allows for a review of the United Kingdom’s current tissue fleet as of Q2 2024. Brazil and Indonesia were chosen as representatives of growing tissue exporting industries. The United Kingdom is the largest customer.
Figure 9 presents a comparative analysis, with the X-axis showing the average technical age of machines in each country and the Y-axis displaying the average tissue machine line speed. The size of each bubble reflects the total production capacity of each country. Türkiye’s tissue fleet ranks as the second newest, just behind Indonesia. However, the country’s machines operate at much higher speeds, indicating notable productivity advantages.
Figure 10 compares the same countries alongside Türkiye but this time focusing on the average cash cost of producing a ton of tissue. The height of each bar indicates the production cash cost for each country, while the width represents their relative tissue capacity. The coloured segments within each bar illustrate the costs involved, including raw fibre materials, market pulp, chemicals, energy, labour, materials, overhead, and any credits.
Türkiye has the third highest production costs among the group. A comparison of the colour-coded bar stacks reveals significant differences, particularly in energy expenses faced by Türkiye’s mills along with Bulgaria and Greece. The United Kingdom has the highest relative energy costs, consigning it as the highest-cost tissue producer. Indonesia and Brazil enjoy relatively low energy costs. The disruption and realignment of energy costs due to the Ukraine war have affected global tissue production costs.
Türkiye also has lower fibre integration than any other country except Greece. The bottom stack bar shows the cost contribution from either recovered paper or wood materials. Instead, Türkiye contributes much more to average costs from purchased and imported pulps. Its mill integration is also shown in Figure 8.
A snapshot of the average tissue machine and mill viability is shown in Figure 11. In this case, the cost of the bar height is determined by viability factors, where cost is only one of the eight factors considered. The legend shows these factors as capital required, cost, grade risk, internal company risk, competitiveness, size, technical age, and tons per unit trim. Türkiye has the best viability score, followed by Indonesia, which is positioned at the lower end of this set. Bulgaria and the United Kingdom show significantly higher risk scores at the right-hand end of the chart. Bulgaria’s score is driven by its old and slow tissue machines. The United Kingdom appears to be in the process of upgrading its tissue fleet.
Figure 12 displays carbon emissions per finished metric ton, explicitly focusing on emissions from tissue machines on-site and excluding pulp production at integrated sites. Scopes 1 and 2 emissions were chosen as they are most likely to be included in a carbon analysis by potential consumers and governments. The colours stacked in each bar represent the source of each emission. The two key areas are fossil fuel consumption on-site for power and heat during tissue drying and the fossil fuel content of electricity grid production.
Due to its significant use of coal, Türkiye suffers from the highest on-site carbon emissions, followed by the United Kingdom and Greece. However, the carbon content of the electric grid is slightly higher than that of the UK. Türkiye also has a carbon penalty from on-site electricity sales to the grid. This reduces the tissue production cost but adds more carbon to the atmosphere. Bulgaria and Indonesia have a very high carbon content in their electric grids. Brazil is a low-carbon leader in both on-site emissions and the electric grid.
The domestic tissue business in Türkiye appears to be slowing its expansion in the post-pandemic and European war periods. Fewer new projects are scheduled to come online in the next three years. Türkiye is suffering from strong inflation, which must affect both energy and imported pulp costs. The country depends more on the global pulp market than other tissue-exporting powerhouses like Brazil and Indonesia. Their newer integrated virgin mills also provide lower cost and low carbon energy on-site. Even integrated recycling mills tend to support more efficient and extensive power sources.
Although the country’s tissue business ranks well in viability in Figure 11 due to the quality of its tissue assets, the risk appears to be growing in this current high-inflation and high-cost energy period for their operating model. Still, Türkiye retains its strategic geographic location for trade and cultural links to the Turkish regions of western Asia. The UK remains its largest tissue export customer and will probably continue to source significant quantities even as the UK replaces older domestic capacity.
Specific details about tissue producers and individual machines are needed to analyse the competitive position. This article provides a static summary of the current tissue industry in Türkiye. Fluctuations in fibre prices, exchange rates, and environmental regulations will introduce advantages and challenges for participants. Furthermore, tissue mills in Türkiye will continue to change ownership and consolidate, and neighbouring countries’ investments in tissue-making capacity may impact imports and exports.
