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Following Articles appeared in the WALDEN-MOTT publication Trends & Markets in the New Millennium by Shaw Shahery GREAT NECK, NY – If you’re part of the tissue industry, then you’re part of one of the more dynamic industries in the world. Sounds like some other industry? Then consider the fact that there have been more than 40 mergers or acquisitions since 1995 in the global tissue industry. As we move into the new millennium, the US tissue market is estimated roughly at $10 billion with a production output of approx to 7 million tons. That’s fairly dynamic. It’s also worth noting growth trends on a global basis. While North America, with close to 35% of world consumption, is still the strongest market, it’s a mature market. The annual unit growth for North America has averaged around 2% since 1990. While that’s above the figures for the prior decade, it’s still below Asia. Asia is now in second place with approximately 27% and an average growth rate since 1990 of nearly 7%. Europe, right behind Asia with 26%, had an average annual growth rate since 1990 of close to 5%. While Latin America is a smaller global market, representing roughly 10%, its impressive annual growth rate since 1990 has been close to 6%. Tempering those potential growth forecasts are the very real increases in the cost of fiber that we have witnessed since late 1999. The exception is in the case of reclaimed fibers where the prices have somewhat fallen during the third quarter. Fiber costs began creeping up steadily since mid 1999, and may likely continue, certainly in the case of virgin pulp. This will put real pressure on manufacturers by increasing their cost of production – costs that they have not been able to fully pass on to their consumers. From the converter’s point of view, they are under severe pressure since manufactures of raw materials expect to pass on their cost increases. However converters cannot easily pass those costs on. Independent converters would be the last to follow price increases because they’re the most vulnerable. They fear that increasing their prices could lead to loss of business. As a rule, there’s always a lag period between when independent converters can accept the full increase of higher paper prices, and when they can actually pass those increases on to their customers. Despite these pressures, the leading players will no doubt continue to grow by increasing their presence in established markets and by expanding into new territories, such as Western and Eastern Europe, Latin America and the Asia Pacific regions. But because of the growing demand and expansion of the specialty markets, there will also be room for smaller, niche players. In the 80s, top seven tissue producers in the US held about 80% of the tissue capacity in the North America. A decade ago, this equation changed and the top six ended up with almost the same 80% of the market capacity. After the multi-billion dollar mergers of the ‘90s, including the acquisition of Wisconsin Tissue Mills by GP, the top four companies, namely Fort James, Kimberly-Clark, GP Tissue and P&G commanded over 85% of tissue capacity in the US. The same group, control about one third of the world capacity. Now with the pending acquisition of Fort James by GP, the remaining three leading producers will hold that position. That’s why tissue remains the most concentrated sector of all pulp and paper products. The retail (At-Home) segment represents approximately 60% of total market volume, while the remaining 40% belongs to the commercial (Away-From-Home) market segment. While both AH and AFH markets may have reached their peaks during their strong growth years, the AFH segment has grown at a faster rate than the traditionally leading AH market. Two factors provided the motivation for independent and entrepreneurial individuals and organizations to seek entry into the AFH market:
Growing demand for the AFH market, as well as strong, established AH markets, could encourage more startups in the U.S. In addition, value-added products, improved softness, higher yield materials, lower dirt count, value and club packs, as well as the strengthening AFH market, all point to further growth opportunities in the U.S. and abroad. In the international arena, the last decade held some major changes for our industry. A number of traditional import countries began producing tissue, and some even joined the international trade. The list includes a number brand-new tissue start ups in the Middle East, Europe, expansions in the Asia region and others. These trends will continue to affect global competition and the way of trade for years to come. Only six-month ago we were thinking that the merger of James River and Fort Howard could be the last consolidation of major tissue producers for some time. That will not be true once the authorities approve the pending acquisition of Fort James by GP. Another significant growth area for the tissue market is Western Europe, whose consumers, as in the U.S., will continue seeking higher quality and additional value-added products. Further expansion of the AFH market, private label and club packs are among the growth opportunities in Western Europe. While multiple local and regional tissue producers and converters characterize the Western European markets, U.S.-based companies will continue efforts to expand and enlarge market share in that region. Based on these facts, combined with the events of the last decade, Convermat feels that the U.S. will remain the dominant force in the world of tissue, and will remain the source for premium and other value-added tissue qualities. The U.S. remains the world’s largest center for jumbo rolls trade. It is expected that the North American paper market will continue leading the world for some time. Even Asia and Europe, while growing more rapidly, are currently at about the point of consumption that North America was at in the ‘70s, and could take some time to catch up. In sanitary tissue, North America represents approximately 35% of world capacity. Asia and the Pacific Rim region follow this at about 27%, Western Europe at 26% and Latin America at less than 10%. Eastern Europe, Africa and the Middle East comprise the small remaining percentage of global share of tissue capacity. Altogether, the tissue industry is currently producing at over 90% capacity. There has been a combination of closures of older mills due to mergers, modernization, construction of new machinery, and equipment rebuilt, with the net effect of increased capacity and tonnage. Specifically, tissue machine construction in the U.S. has continued and, in ’98, added 180,000 tons. A further 130,000 tons was added in ’99. In 2000 we will have another 200,000 tons of new capacity. For 2001 & 2002 both KC & P&G have already announced new capacity increases. In Europe it’s the Italian tissue producers who are taking the lead, adding new machinery at breathtaking speed in Italy, and expanding throughout Europe. They’ve been working to raise capacity by approximately 400,000-500,000 tons per year, with half of that growth in France and Spain. They are the driving forces behind private label growth in Europe. Pulp & Paper predicted, in June of 1998, that the global tissue market would continue to grow capacity "through 2000, adding 1.8 million metric tons." They also predicted that Asia and North America will each add around 550,000 tpy of capacity, "while Europe is slated to grow by over 475,000 mtpy." They were extremely close in their predictions. The bottom line is that we have a strong, stable industry that is challenged by the cost of fiber. While we arrived at a cyclical high for the price of pulp in 1995, it seems that we are being tested again. So while there are signs of growth everywhere, the demand for paper has also grown, bringing some pulp prices to 700 dollar per ton level. Hence, the pressure on manufacturers is intense in trying to pass on their increased costs. The overall affect would be lowered profits. And when there are lower profits, there’s less money for the creation of new products and new markets. So we’re in somewhat difficult times, with considerable growth on the one hand, and considerable cost increases on the other. Consequently, we’re all watching what happens, very carefully.
About Convermat
Founded in 1976, Convermat specializes in the sales of jumbo
rolls of tissue, napkin, towel, specialty paper, board, kraft and
pulp. Convermat’s international client base covers over 80
countries, including a solid presence in the U.S. market. Convermat’s
professional sales staff handles every aspect of the transaction
including transportation & logistics, documentation, technical
specifications, foreign currency management, credit financing and
post-sales service. Because Convermat holds a major share of jumbo
rolls of tissue sales in the United States and in a number of
growing and emerging countries, the company has been described as
the "jumbo rolls leader" in the tissue industry. |
