By Bill Burns, Senior Consultant, Fisher International
Italy is traditionally a major player in the story of tissue and today remains the capacity leader in the Western European market. Comparisons to competing countries within Italy’s natural market provide a good overview of these local market areas. This article has the added twist that it characterises competitiveness across the set of paper machines in Western Europe.
At the close of 2016 there were 204 machines making 6.7+ million metric tonnes of Towel and Tissue (T&T) annually in Western Europe. Italy represents one-third of the machines and makes about 30% of the region’s tonnes (Figure 1).
The country has long been the capacity share leader, with its share varying between 27% and 30% (Figure 2) as the region rationalised assets. A look at the other Western European countries hints at some softening across the area but the impact is significantly less than in Italy (Figure 3). Generally, asset rationalisation (closures, upgrades, and expansions) stems from issues with market demand, regulatory pressures, corporate health, and competitiveness. The remainder of this article will look at some of the factors that define the competitiveness of Italy’s machines.
Machine speed and trim are two key measures of competitiveness as they determine much of a machine’s production capability, assuming an equivalent product. A histogram analysis shows how distribution of machines in Italy compared with the rest of Western Europe changed before and after the Italian share drop off.
The distribution of Italian machines is skewed in 2007 (the “before” benchmark year) and 2016 (the “after” benchmark) with peaks around 1,600 – 1,700mpm (Figure 4). It is clear that speeds are increasing, by existing machines speeding up and/or by older machines being replaced by newer, faster ones.
The remainder of Western Europe machines collectively also bias to higher speed and appear to be bimodal in nature. Like Italy, there is a set of machines that peak around 1,600mpm. Unlike Italy, there also appears to be a set of machines that peak in the 2,000mpm range (Figure 5). Both analyses show broad distributions with several machines well off in speed and a few machines well above the speed of others.
Results of the histogram analysis on trim are better defined. This is somewhat expected as paper machine trim is driven by physical building considerations and downstream considerations like product configuration and converting equipment investments. Trim histograms for Italy are bimodal with peaks at 3 and 5.5 metres. Clearly, most machines are in the 3-metre size class with only 10 wider machines present (Figure 6). There is very little difference in the Italian trim distributions going from 2007 to 2016. Western European (without Italy) machines are similarly distributed with the same bimodal shapes but one significant difference. There are considerably more 5.5 metre machines present (Figure 7). As with Italy, there is little change between the two benchmark years.
A competitiveness assessment would not be complete without looking at cost. Country level average cash cost is not very revealing in Western Europe. Most of the tonnage falls in a tight band around $1,000 FMT (Figure 8). There are some outliers with lower cost thanks to integrated fibre and advantageous labour cost. There are also a few higher cost countries driven by energy and labour costs.
Drilling down to machine level paints a more complete and interesting picture. The range of machine cost is much clearer, ranging from less than $600 FMT to more than $1200 FMT (Figure 9). Lower cost machines are in integrated facilities while higher cost machines use purchased fibre and tend to have high labour and/or energy costs.
Using a histogram on machine-level cost and capacity can provide additional insight into Italy’s competitiveness in its natural market. Cost histograms show Western European and Italian distribution around $1000 FMT (Figure 10).
It also indicates that Italy has a tighter distribution than the remainder of Western European machines, suggesting there may be some vulnerable higher cost machines outside Italy. Capacity distributions are also somewhat interesting. Western Europe (without Italy) has a bimodal distribution which is consistent with the speed and trims analysis results. Italy is different, showing a skewed distribution with little influence from the 5.5 metre machines (Figure 11). There could be some underutilised upside for these wider Italian machines.
This has been a high-level look at a local T&T market. As one might expect given Italy’s market share, it shows the competitiveness of the country’s machine base within its Western European market. There also may be some additional market share opportunity by leveraging wider machines, especially on high volume products.
The source for market data and analysis in this article is FisherSolve™.
About Fisher International, Inc. Fisher International supports the pulp and paper industry with business intelligence and strategy consulting. Fisher International’s rich databases, powerful analytics, and expert consultants are indispensable resources to the industry’s producers, suppliers, investors, and buyers worldwide. FisherSolve™ is the pulp and paper industry’s premier business intelligence resource. Complete and accurate, FisherSolve is unique in describing the assets and operations of every mill in the world (making 50 TPD or more), modeling the mass-energy balance of each, analysing their production costs, predicting their economic viability, and providing a wealth of information necessary for strategic planning and implementation. FisherSolve is a product of Fisher International, Inc. For more information visit: www.fisheri.com or email [email protected] USA: +1-203-854-5390