The newly announced India Middle East Europe Economic Corridor (IMEC) will add even greater incentive to the rising young population and tourism boom fuelling growth. For the Middle East Paper Company the decision to diversify into tissue is paying off. Senior Editor Helen Morris spoke to Chief Commercial Officer Ahmed El Fazary.
At the G20 Leaders’ Summit in September, India’s Prime Minister Narendra Modi officially acknowledged the scale of possibility for growth in the Middle East when he announced the Indian Middle East Europe Economic Corridor (IMEC).
A new acronym was created, and with it confirmation of how vital the region’s trading bloc will continue to be over the coming years.
The IMEC economic corridor is designed to link India, the Middle East and Europe, and will solidify the region’s historic position as a primary trade route. The Kingdom of Saudi Arabia (KSA), the UAE, India, France, Germany, Italy, the US, and the EU have signed the deal, which will comprise two separate corridors: the east corridor will connect India to the Arabian Gulf and the north corridor connecting the Gulf to Europe.
The transnational shipping and railway corridor is expected to counter China’s Belt and Road initiative, moving goods from India to UAE’s Fujairah Port on to Israel’s Port of Haifa via Saudi Arabia and Jordan. From Haifa Port, goods from India and other Asian countries will be shipped to Europe.
It will also, undoubtedly, substantially increase demand and smooth supply chains for tissue and towel products across the region.
One such company ready to target that potential is Saudi Arabia’s Middle East Paper Company (MEPCO). TWM first spoke to the company’s Chief Executive Sami Safran in December 2021, where he discussed the tissue growth that had led to the business diversifying into the market and signing for its first tissue machine. At the time, KSA’s tissue consumption was forecast to accelerate in the medium term with per capita consumption jumping to 300,000tpy, aided by population growth and high income per capita. The company – by trade a vertically integrated containerboard and paper manufacturer, producing products serving the world’s packaging, construction, furniture, and paper core industries – had just broken ground on its new 132,000m2, SAR338m ($90.13m) tissue plant in King Abdullah Economic City (KAEC).
The KAEC – a megaproject announced in 2005 by the former king of Saudi Arabia, King Abdullah bin Abdulaziz Al Saud – is located along the coast of the Red Sea around 100km north of Jeddah, the country’s commercial hub and the location of MEPCO’s headquarters.
As of May 2023, the site is also now home to MEPCO’s first tissue production machine: a 60,000tpy Toscotec-supplied AHEAD 2.2L double-width machine. At the time of start-up, Adel Alfar, Operations Director at the Juthor plant, said that despite some challenges during the pandemic, the business has “successfully managed to deliver the test run and the commercial launch according to the scheduled timeline very smoothly and efficiently, producing premium quality tissue products.”
The line has a maximum design speed of 2,200m/min and is equipped with a shoe press TT NextPress of upgraded design, a third-generation TT SYD Steel Yankee Dryer, and high efficiency TT Hood-Multigen with integrated cogeneration air system. Its drying section uses CHP-produced thermal energy both to generate the steam used in the Steel Yankee Dryer, and to achieve the correct drying temperature of hot air circulating in the hoods air system. As a result, the tissue machine will rely entirely on the CHP system for paper drying and won’t require any additional gas consumption and associated greenhouse gas emissions.
Safran had explained that the investment was due to “a noteworthy gap” between supply and demand of tissue products in Saudi Arabia. Demand for products by local consumers continued to be supported by a natural growth in population and also in per capita consumption, as well as the social transformation taking place recently with increases in tourism and an influx of pilgrims.
Importantly, in 2021 Saudi Arabia was also the largest importer of tissue in the whole of the Middle East, importing more than 150,000tpy of tissue from abroad. Safran had said the company was “determined to change that situation. We think big, and have an ambitious vision to realise. We have also chosen a location so it’s possible to expand further into tissue.”
With the tissue machine now up and running, TWM spoke to MEPCO’s Chief Commercial Officer Ahmed El Fazary from his office in the KAEC. The company’s $100m investment into tissue means that +10% of MEPCO’s total volume is now for the tissue market, and while there are no converting plans “for now … we definitely have very ambitious growth plans. The group’s dominant strategy is to grow our waste management, containerboard and tissue sectors.”
Egyptian-born El Fazary adds that based on statistics for Saudi Arabia, there’s still a substantial gap between consumption and production: “As of 2023, a gap of 170,000 tonnes is currently being imported into the country, and this is the reason we decided to go into the tissue market,” he says. “We still see room for further expansion to fulfil local demand and we are seeing a huge growth potential in demand in the area.”
He cites RISI Fastmarkets’ data platform, which has reported that the global consumption of paper and paperboard totalled 408m tons in 2021, and now in 2023 it is 430m tons. “Consumption is projected to continue rising over the coming decade to reach 476m tons by 2032,” he says. “Global tissue consumption is 43m tons, representing 10% of the total paper industry consumption. But in two decades, that 43m tons is expected to grow by 100%. Global demand for tissue is expected to continue increasing annually over the coming decade, reaching 55m tons by 2032.
With that in mind, El Fazary says tissue consumption in Saudi Arabia is growing “the fastest among global markets. The Saudi population is 37m and is young and growing. Economic conditions are healthy and very promising, which very much drives growth in demand for tissue.”
With two tissue machines starting up in 2023 – Saudi Paper Group is also planning to start-up a Toscotec-supplied TM in 2024, which El Fazary describes as “a nice race” – does he think there will soon be overcapacity that means the business will be pushed to export? “No, but one of our core strategies is to diversify our markets and accordingly we will keep a certain percentage of sales for export, along with the fact that being exposed to exports keeps the company agile and on top of its game with all market or industry developments.”
Tissue trends in KSA have seen “a major shift” following the changes to the country in the past few years. He explains that the dominant tissue product is facial tissue, but that the business is already seeing that shift. “AfH is increasing rapidly as we see more and more people getting takeaways and eating out. KSA is really opening to tourism, which as a key driver of AfH means we are seeing increased demand for all tissue and towel products. And interestingly, this growth is not just in the dominant facial market but also in toilet paper, napkins, and others. It’s not so much that KSA is changing habits as that the country is becoming more open, it’s easier to get visiting visas, more tourists, more restaurant visits… more tissue! It will be even more recognisable in the future.”
While inflation is “not so much a hot topic here, it’s controllable,” he says that as a consumer himself a lot of commodities have dropped costs lately, as well as finished goods. “However, in the tissue sector the country is seeing an uptick in private label products, they are becoming a lot more popular especially in the AfH markets.”
In terms of energy, he adds that natural gas prices “dropped tenfold” from August 2022, dropped back “almost to normal.” And the business continues to make strides forward for energy and environmental efficiencies, using, he says, 100% pulp that is FSC-certified. “We are keen to highlight the sustainability efforts we as a business and the paper industry as a whole is making. Tissue is making advances to use raw materials from controlled forests. We do believe that the sector is in the core of the circular economy.”
In KSA, not everyone is yet as conscious of FSC as other world regions, but increasingly more and more customers are requiring it. “From our position we also try to bring awareness to it. We were the first to acquire FSC here for our containerboard products, where at our MEPCO facility we produce our own steam and electricity and recycle 70% of our water requirements. We produce a sustainability report alongside our Annual Reporting.”
The recently announced IMEC corridor also holds vast potential: “The Arabian Gulf and India already have strong trade relations and the new corridor should work as a strong catalyst to further strengthen the trade between both exponentially fast-growing economies/regions,” he says. “The north corridor will also be a game changer in connecting the East to the West. No doubt that this will subsequently have extremely positive implications on the tissue industry in KSA, through the faster cost-efficient logistics infrastructure enabling Saudi producers to sustainably reach larger diverse markets using clean energy. Above and beyond, this could open the door for larger industry consolidations and integrations across regions.”