US tissue market: dynamic phase following recent slow growth

With America’s tissue market geared up for Tissue World New Orleans in March 2016, RISI’s Esko Uutela talks growth and demand trends in the world’s largest tissue market

14SeptOct_Marketissues_2 (Custom)This year has been characterised by surprisingly strong demand growth in US tissue consumption, particularly in the Away-from-Home sector (AfH). In the first nine months, total tissue consumption showed demand growth of 2.8% from the same period in 2014. Converted product shipments showed somewhat less growth – 2.0% as a total compared to 2.8% in AfH shipments – but more than 10% growth in converted product imports.

A decline in exports also contributed to the growth in total tissue consumption. There are no exact statistics dividing imports between the consumer and AfH sectors, but information from the marketplace suggests that more than half of converted tissue imports are AfH products.

Therefore, it can be concluded that tissue consumption in the AfH sector grew by around 3.5-4.0% in January-September 2015. The last three months will decide where total growth will be for the year as a whole, but it is likely that total tissue consumption (At-Home and AfH combined) will record growth of somewhere between 2.0% and 2.5%, if not even more.

One may ask why after the slower growth of the past couple of years (0.9% in 2013 and 1.4% in 2014), this year will most likely show a jump in growth rates to those that were typical 10-15 years ago but haven’t been seen since the 2009 recession.

The boom in the AfH sector seems to be the main driver, but why is this happening? There are several reasons, with the main one being that people are simply moving more than before. One factor is the major decline in gasoline prices: July 2015 prices were 43% lower for regular and 30% lower for premium compared to July 2014.

This has boosted traveling, eating out and other AfH activities. Based on recent statistics, the HoReCa sector is booming: hotel occupancy rates have continued to move upward more than forecast and restaurant sales have grown further. Unemployment has continued to decrease (by 1.5 million over the year) and new employment generation has shown a positive trend, meaning more people at work in offices, factories, service industries, etc., which has a direct effect on AfH tissue demand.
Increased converted tissue product imports have been more for the AfH than the AH sector, also contributing to the boom. Finally, statistically 2015 and 2014 half years are not 100% comparable due to climatic factors (i.e. the harsh 2013/2014 winter).

The positive demand-driven trend in the US tissue sector has encouraged tissue companies to expand. The most important recent movement came on 13 October it was announced that SCA will acquire Wausau Paper for total consideration of US$513 million in cash.

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The boards of directors of both companies have unanimously approved a definitive merger agreement. The completion of the transaction is subject to Wausau Paper shareholder and regulatory approvals, but is expected to take place.

Recently the companies announced early termination of the waiting period required under the US Hart-Scott-Rodino Antitrust Improvements Act of 1976, so it looks like there will not be any obligations from the competition authorities.

The second announcement came from the Italian Sofidel Group with its acquisition of Green Bay Converting’s converting plants in Wisconsin and Mississippi, adding about 65,000 short tonnes of both AfH and private label converting capacity to Sofidel’s current (ex-Cellynne) North American assets.

Sofidel also announced its commitment to invest more than US$300 million over three years (2015-2017) in the USA, including also a greenfield plant with papermaking to be located at Circleville, Ohio. This is a bold expansion move from the family-owned company, and will change the competitive picture among US tissue suppliers, especially in the private label segment.

Based on recent statistics, the HoReCa sector is booming: hotel occupancy rates have continued to move upward more than forecast and restaurant sales have grown further. Unemployment has continued to decrease (by 1.5 million over the year) and new employment generation has shown a positive trend, meaning more people at work in offices, factories, service industries, etc., which has a direct effect on AfH tissue demand. 

Most recently, Resolute Forest Products announced the acquisition of Atlas Paper Holdings, a manufacturer of AH and AfH tissue products, including recycled and virgin paper grades, with a total capacity of 65,000 short tonnes. Earlier the company had revealed its investment in a new tissue PM at its Calhoun, Tennessee, mill.

Through the acquisition of Atlas, Resolute will secure an immediate position in the North American consumer tissue market, capturing synergies by integrating forward its US market pulp assets and giving the company the immediate tissue industry experience needed for the preparation of the Calhoun tissue project start-up in early 2017.

These competitive moves will change the relative competitive positions in the US tissue industry, particularly in the AfH sector. Assuming the deal between SCA and Wausau will be accepted without issue by Wausau shareholders and the competition authorities, as it looks now, SCA would pro forma increase its market share in the US AfH tissue business from its current 20% to 27% after the completion of the Wausau Paper deal (Figure 1).

The deals currently in the making would also put Sofidel and Resolute on the list of the top ten players.

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