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RISI Global Tissue OutlookWill Brexit Affect the European Tissue Business?

Esko UutelaPrincipal, Tissue

RISI European ConferenceAmsterdam, Netherlands, March 2017

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• Educational background in forestry, economics and business studies

• In consulting business and information services for the forest industry since 1976

• Cooperating with RISI since 2007• Developed global tissue databases and

forecasting models• Previous experience in graphic papers,

packaging papers and recovered paper• Assisted by RISI Asian, European and

American colleagues and consultants• Produced more than 200 single‐ and multi‐

client tissue studies

Principal, Tissue

Esko Uutela

[email protected]

© Copyright 2017 RISI, Inc. | Proprietary Information 2

Agenda

• Recent Global Trends

• American Outlook

• Asian Outlook

• European Outlook

• Possible Effects from Brexit

• Summary of Global Outlook

• Concluding Remarks


RECENT GLOBAL TRENDS


World Tissue Consumption by RegionMarket is dynamic: China has passed Western Europe in market size, while Asia Far East is now—and Eastern Europe soon will be—larger than Japan

N. America 25.2%

China20.7%

W. Europe18.8%

L. America11.2%

Asia Far East5.9%

Japan5.5%

E. Europe5.3%

N&M East4.0%

Africa2.1%

Oceania1.2%

Global Consumption: 34.9 Million Tonnes (2015)


Growth in the Global Tissue MarketRelatively stable growth until the Great Recession in 2009, volume growth slightly above 1.0 million tonnes per year, recovery took a few years but 2015 was a good year due to China, North America and Western Europe, preliminary data suggest that 2016 also strong

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Regional Volume Growth of Tissue Consumption, 2000‐2015

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Total Global Growth: 13.9 Million Tonnes (930,000 Tonnes per Year)

Latin America shows the second‐largest volume

growth


AMERICAN OUTLOOK


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North American Tissue Business Exceptionally Strong in 2015‐2016Sound economy helped growth, particularly in the AfH sector

Average growth accelerating from 1.5% to 1.75% per year


Retailer Label Share Up in the USA, Down in CanadaMajor fight going on between private labels and brands in the USA, with brand owners increasingly using special price promotions, while in Canada brands continue to rebound through "half‐price" actions

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Expected Growth in US Tissue Consumption by Business SectorAt‐Home retailer labels will show strong growth of about 640,000 tonnes in 2010‐2018, while At‐Home branded volume growth will remain moderate

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Market Volume

Growth of 6.0% per year

Minor Growth of 0.2% per year

Growth of 2.2% per year


Major Tissue Capacity Changes*in North America, 2016‐20172016• First Quality Tissue, Anderson, SC (new TAD PM) 64,000 t/a• Von Drehle Corp., Natchez, MS, USA (NTT PM) 32,000 t/a• St. Croix Tissue (APP), Baileyville, ME, USA 126,000 t/a• Clearwater Paper, Neenah, WI, USA ‐29,000 t/a

193,000 t/a2017• Orchids Paper Products, Barnwell, SC, USA (NTT PM) 32,000 t/a• Resolute Forest Products, Calhoun, TN, USA (NTT PM) 60,000 t/a• Kruger Products, Crabtree, QC, Canada 20,000 t/a• Little Rapids Corporation, Shawano, WI, USA (replacement) 10,000 t/a

122,000 t/a


* In metric tons

Major Tissue Capacity Changes*in North America, 2018‐20192018• Sofidel America, Circleville, OH, USA (2 x NTT) 140,000 t/a• ST Tissue, Franklin, VA, USA 45,000 t/a• Irving Consumer Products, Fort Edward, NY, USA 64,000 t/a• First Quality Tissue, Anderson, SC, USA (TAD PM) 64,000 t/a

313,000 t/a2019• Clearwater Paper, Shelby, NC, USA (NTT PM) 64,000 t/a• First Quality Tissue, Lock Haven, PA, USA 64,000 t/a• First Quality Tissue, Anderson, SC, USA (ATMOS PM) ??? 68,000 t/a

196,000 t/aPotential Projects• Kruger Tissue, Memphis, TN or Canada (TAD PM) 65,000 t/a• Resolute Forest Products, Calhoun, TN, USA (second NTT PM) 60,000 t/a• Sofidel America, Tulsa, OK, USA (TAD PM) 70,000 t/a

195,000 t/a

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* In metric tons

Net Capacity Change* and Tissue Capacity Utilization in North AmericaThis year is looking good as some projects have been delayed, but any new expansion adding to the committed capacity would change the current outlook from rather stable to negative; potential closures could help

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A lot of new capacity coming on stream that will affect 2019‐2020; utilization rate will head south if no further closures occur


Expected Volume Growth of Latin American Tissue Demand by Main Country, 2015‐2019Brazil is expected to recover in 2017‐2019

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Net Capacity Change* and Tissue Capacity Utilization in Latin America Project delays and stronger demand could help a lot, but currently the outlook is not encouraging for new investments

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ASIAN OUTLOOK


Main Asian Tissue Markets, 2015China dominant, Asia Far East now larger than Japan

China57%Asia Far East

17%

Japan15%

N&M East11%

Total Market Size: 12.6 Million Tonnes


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Recent Growth Rates of Chinese Tissue Consumption The Chinese tissue market has been in a very strong growth phase, but since 2011 market growth has slowed substantially

Average growth: 7.9% per year

Recently, growth has been slowing, but 2015 was an exception


Chinese Tissue Export Growth, 2009‐2016Chinese tissue exports exploded in 2011‐2014 and went to nearly every corner of the world—with Asia Far East, North America and Japan being the largest buyers, followed by Oceania. Growth waned in 2015, but resumed in 2016, although not to 2014 level.

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Average growth rate, 2011‐2016 +11.5%/a


Chinese Investments Exploding, but Closures and Project Delays Expected There is a real investment peak with too much capacity being built, but currently also a wave of capacity closures in the industry

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Net Capacity Change* and Capacity Utilization in the Asian Tissue IndustryOvercapacity is obvious, although project delays may help

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EUROPEAN OUTLOOK


Eastern European Importance Increasing Rapidly in the European Tissue Business

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WE88%

Other EE9%

Russia3%

2000

WE78%

Other EE16%

Russia6%

2015

Main European Tissue Markets, 2015The four largest markets account for half of European tissue consumption, only two Eastern countries on the top 10 list

Germany17%

UK13%

France11%

Italy10%Iberian

Peninsula10%

Russia6%Nordic Countries

6%

Benelux5%

Poland5%

Greece2%

All Others15%

Total Market Size: 8.4 Million Tonnes © Copyright 2017 RISI, Inc. | Proprietary Information 25

Western European Tissue Market Showed Positive Recovery in 2015Southern Europe finally returning to its pre‐recession level

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Very long‐lasting recession but 2015 positive recovery


Eastern European Tissue Market Growth Negatively Affected by the Political TensionThe Russia‐Ukraine conflict has also taken a toll onthe tissue sector

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Recent growth disappointing and far from the trend line


Volume Growth of WE Tissue Markets by Main Country, 1995‐2015In the past 20 years, growth has been strongest in Germany, followed by Spain, France and the UK

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Volume Growth of E. European Tissue Markets by Main Country, 1995‐2015In the past 20 years, Russia and Poland have clearly been driving growth, followed by Ukraine and Romania

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Per Capita Consumption of Tissue in Western Europe, 2015

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Per Capita Consumption of Tissue in Eastern Europe, 2015

31© Copyright 2017 RISI, Inc. | Proprietary Information

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Volume Growth of W. European Tissue Markets by Main Country, 2015‐2019In the next few years, volume growth will be largest in the UK, followed by Germany, France and Italy

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Major Capacity Changes (>10,000 t/a) in the WE Tissue Industry, 2016‐20172016:• Cartiera del Borgo (Eurovast), Fabbriche di Vallico, Lucca, Italy 20,000 t/a• SCA Hygiene Products, Mediona, Spain ‐45,000 t/a• SCA France, Hondouville, France ‐21,000 t/a• Several Rebuilds by Different Companies 33,000 t/a

‐13,000 t/a2017:• Paper Prime (Trevipapel), Vila Velho de Rodao, Portugal 32,000 t/a• Renova, Torres Novas, Portugal (NTT) 35,000 t/a• Ariete, Cava de Tirreni, Salerno, Italy 25,000 t/a• SCA, Stubbins, UK ‐20,000 t/a• SCA, Chesterfield, UK (TAD PM rebuild and restart) 28,000 t/a

100,000 t/a

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Major Capacity Changes (>10,000 t/a) in the WE Tissue Industry, 2018‐20192018:• Goma‐Camps, Ejeo de Caballeros, Spain, Italy 34,000 t/a• The Navigator Company, Cacia, Aveiro, Portugal 70,000 t/a• ICT Iberica, El Burgo del Ebro, Zaragoza, Spain 70,000 t/a

199,000 t/aPotential Projects (2018‐2019):• Norske Skog, Bruck an der Mur, Austria 70,000 t/a• Accrol Paper, Blackburn, Lancashire, UK 60,000 t/a• Confidential, Central Europe 65,000 t/a• Ibertissue (Sofidel), Bunuel, Spain 30,000 t/a• Cartiera Carrara (MC Tissue), Ferrania, Savona 30,000 t/a• Delipapier, Ingrandes, France 60,000 t/a

315,000 t/a


Net Capacity Change* and Tissue Capacity Utilization in Western Europe until 2019Capacity closures helped the industry in 2011‐2013, but new projects thereafter cut the trend. Current outlook is stable but any new projects could change it.

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Volume Growth of E. European Tissue Markets by Main Country, 2015‐2019Russia is expected, despite its current economic problems, to lead the volume growth in the region, followed by Poland, Romania and Ukraine

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Major Capacity Changes (>5,000 t/a) in the EE Tissue Industry, 2016‐20182016:• Firma W. Lewandovski, Wloclawek, Poland (20K‐15K) 5,000 t/a• Syassky, Syasstroy, Russia 38,000 t/a• Tissue Paper, Tbilisi, Georgia 7,000 t/a• JSC Kohavian Paper Factory, Gnezdytchiv, Ukraine 5,000 t/a• Drenik, Belgrade, Serbia 10,000 t/a

65,000 t/a2017‐2018:• Kostenets HHI, Kostenets, Bulgaria ‐26,000 t/a• Novak‐Papir, Peruc, Slavatien, Czech R. 10,000 t/a• Kuban‐Papir, Krasnodar, Russia 8,000 t/a• WEPA Professinal, Piechowice, Poland 32,000 t/a• Delitissue, Ciechanow, Poland (NTT PM) 70,000 t/a• Velvet CARE, Klucze, Poland 60,000 t/a• Arkhbum Tissue Group (APPM), Vorsino, Russia 70,000 t/a

224,000 t/a


Net Capacity Change* and Tissue Capacity Utilization in Eastern Europe until 2019New investments from late 2014 onward and slowed demand growth caused capacity utilization to decline, no immediate change expected

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POSSIBLE BREXIT EFFECTS


Uncertainty About What May Happen• Nobody seems to know exactly the possible influences of the

forthcoming Brexit on different businesses, and tissue is no exception.

• There is quite a lot of commotion in the UK at the moment regarding the Brexit issue, which is having some economic and other consequences, as we have already heard in a few other presentations.

• Although I am no expert on the Brexit issue, I would like to discuss the following points that could have some effects on the future of the tissue business: Possible effects of weaker currency on consumer behavior due to lower

purchasing power (At‐Home) and squeezing budgets in the AfH sector Industry, investments and financing issues Threats to the current free trade agreements


Possible Brexit Effects (1)• Consumer confidence is at a low level as everybody is waiting to

see what may happen, so the overall spending climate is not positive for purchasing of any kind of products.

• Tissue as a daily necessity may not be the product most sensitive to changes in purchasing behavior, but we cannot exclude the possibility that consumers could slow ongoing product upgrading and perhaps even exclude some products other than toilet tissue from their normal shopping list.

• The AfH sector is always more sensitive to the economic cycle than the At‐Home sector and any economic slowdown has an immediate effect on this business sector—buyers’ budgets are often squeezed and downgrading in quality is also common.

• In particular, if the financial center of London sees major departure of banks to other countries, this alone could result in unemployment and fewer jobs could have a negative effect on tissue consumption.


Possible Brexit Effects (2)• The tissue industry is very dependent on imports of pulp and/or

tissue parent reels (converters playing a major role in the UK), and the weaker currency has a negative effect on product margins.

• The domestic tissue industry has not made any major investments recently and in the current uncertain conditions the overall environment for financing investments, especially those of smaller producers and converters, is not favorable.

• The UK is one of the main tissue importers in the world and almost half of tissue sold in the UK is based on imports, but the weaker currency may make them less attractive to export suppliers, which could help the domestic industry.

• Finally, what will happen to the current free trade? The UK has been open to imported goods and if any import duties emerge for tissue, it could help the domestic industry but not necessarily total consumption.


SUMMARY OF GLOBAL OUTLOOK


Anticipated Growth in the Global Tissue MarketTissue consumption benefitting from improving global economic growth, but there are also uncertainties ahead

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Net Capacity Change* and Capacity Utilization in the Global Tissue IndustryMajor capacity closures could improve outlook, but only marginally. Global overcapacity is the name of the game!

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Concluding Remarks• China's growth is slowing and also cutting average global

growth to 3.5% per year, which is still good, although down from 4.0% earlier. But China will continue to be the main driving force of global tissue industry expansion, although overcapacity is a threat in nearly every region. Project delays will be common.

• North American developments are characterized by steady and encouraging growth with many new developments and technological and raw material considerations, but also continuing fights between brands and private labels.

• Latin America is suffering from economic instability, Brazil is in a deep recession but recovering, and Venezuela is a catastrophe as long as everything is controlled by the current government. However, Mexico is back on a growth track again.


Concluding Remarks• The Western European tissue business had a rather quiet

phase, but is now seeing some more positive developments, and many new plans are currently moving forward.

• Investments are concentrated in certain sub‐regions, the Iberian Peninsula in particular, and this is likely to cause export pressures outside Europe and regional overcapacity is obvious.

• Russian‐Ukrainian conflict continues to cast a pall over the Eastern European outlook and there is no certainty regarding how long this will continue. New Russian investments, an economic recession and slower tissue demand growth have resulted in overcapacity. Weak currency has cut imports and helped Russian suppliers to increase exports, such that Russia was a clear net exporter of tissue last year.

• Central Eastern Europe and the Balkan Peninsula are less influenced by the Russian conflict, but per capita consumption levels are already higher, which limits growth potential.


Thank you for your attention!For more information:

Outlook for World Tissue Business

www.risi.com/OWTB

World Tissue Business Monitor

www.risi.com/WTBM

US Tissue Monthly Datawww.risi.com/USTM


risi global tissue outlook - fastmarkets risi · growth in the global tissue market relatively...

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