By Esko Uutela, principal, tissue, RISI
Global tissue consumption has returned onto its steady growth trend line of 4% per year after only a small bend on the growth curve caused by the global recession in 2009. The global tissue industry reacted surprisingly fast to the recovery and we have seen a vast quantity of new project announcements, not only in China but also in Latin America, North America and Europe. But having an analytical and objective view to the global project situation, one specific feature stands out: the expansion speed of the main Asian (Chinese) tissue suppliers by far exceeds that of the most other top 20 global tissue companies. Actually, CMPC Tissue seems to be the only non-Asian origin tissue company being able to keep up with the investment pace of the Asian suppliers.
Based on the 2011 effective capacity (which takes into account learning curves of new capacities), the four largest global tissue suppliers are still of Western origin, with Kimberly-Clark (K-C) continuing to be the global leader, followed by Georgia-Pacific (G-P), SCA and Procter & Gamble (P&G, Figure 1). But the number five global supplier today comes from Asia: Asia Pulp & Paper (APP) has tripled its share of global tissue capacity from 1.1% in 2005 to 3.3% in 2011, which means in only six years! And a lot more is already in the pipeline and even more expansions on the drawing board.
It is clear that tissue companies whose concentration is on the key growth areas, such as China or Latin America, will benefit from market expansion more than companies whose main business focus and capacity is in more mature markets. All four of the largest global tissue suppliers have lost capacity share from 2005 to 2011: KC from 14.0% to 11.6%, G-P from 13.4% to 9.8%, P&G from 5.8% to 4.2% and even SCA from 8.2% to 7.7% despite its expansion through acquisitions (Europe) and organic growth (North and Latin America). However, the key business target of these established players seems today to increasingly be margin generation, improved profitability and increase in shareholder value rather than volumebased market expansion.
The same trend is expected to continue in the next few years, provided no major unforeseen acquisition-based changes happen between the largest players (which are fully possible if not even likely). It seems inevitable, based on the current outlook, that the three US-based players in particular will continue to lose market position globally, while the Asian companies will be the market share winners. SCA and CMPC Tissue are likely to cope better with their capacity shares through both investments, mainly in the emerging markets, and potential acquisitions elsewhere. The largest global tissue maker, K-C, has already recently reduced its capacity in the Asia- Pacific region (Australia and the Philippines, for example) and will reduce capacity in North America (the Everett mill in Washington will close at the end of March) and Europe (rationalisation expected), while some expansion is likely to take place in Latin America (Brazil, Mexico). G-P is still reconsidering its asset base in Europe, and at least some mill sales and/or closures are rumoured to be possible in the foreseeable future (the company itself has not commented on these rumours). P&G seems to fully concentrate on North America in its tissue strategy.
But what can be expected to take place with the Asian players? Figure 2 shows that APP will clearly take the number four global tissue supplier position from P&G by 2013, according to the committed investment plans (not including some more investments still in the planning stage). The Hengan Group will jump from its twelfth position to seventh among the global suppliers in 2012. The two other main Chinese players, Vinda Paper (where SCA has a less than a 20% minority shareholding) and the C&S Group (formerly Zhongshun), will also improve their relative positions. But beyond this foreseeable development, what else may happen? APP’s ambitious expansion plans are obvious, not only in the Asia-Pacific region but also globally. The company does not practice any active or cooperative communication policy, but it is rumoured that after building converting capacity in the US market (in California and Virginia), the next phase of expansion is to build a tissue mill in the USA, which would be for the manufacture of ultra and premium quality tissue (most likely based on TAD or equivalent technology) to be able to better serve the demanding US clients. This strategic move is likely to be followed by targeting Europe on a larger scale as well, instead of only selling parent rolls and selected converted tissue products. APP has already acquired pulp mill assets in both Canada and Europe (France), so the company is also a hot purchasing candidate for potential tissue mill acquisitions as well (although not at any price).
The global tissue industry and its players are in a very interesting phase and major changes in the current structure can be expected. Restructuring needs on the one side and ambitious expansion targets on the other side — it will be interesting to follow what will happen in the next couple of years. Based on the very dynamic phase in the global tissue business, I am personally rather convinced that some larger new developments will emerge — but would not like to speculate further as to what they might be.
Esko Uutela works out of RISI’s EU consulting office close to Munich,
Germany. Tel: +49-8151-29193,
Email: [email protected]