Global tissue consumption reached 31.5 million tonnes in 2012, up by 1.14 million tonnes from 2011. The volume growth in global tissue consumption was, after revisions for the 2011 figures, slightly higher than in the two previous record years and so the highest ever. Relative growth remained at the same 3.7% level as in 2011, so solid growth after the 2009 deep recession continued. It should be noted that 2012 was a leap year, so one extra day (at least theoretically but likely also actually) increased tissue consumption by 0.27 percentage points.
We have revised the Chinese consumption and production figures for 2011-2012 based on sales rather than production volumes to better corre- spond to the actual consumption developments in the marketplace, as apparent consumption (calculated as production plus imports minus exports) is distorted by changes in parent roll stocks (in China 2011 production was much higher than actual sales while the reverse took place in 2012). This revision and some other adjustments brought the global 2011 growth rate down from more than 4% shown earlier to 3.7%. The main disappointment of 2012 was that in Western Europe tissue consumption remained flat, reflecting the poor economic performance in general, and particularly Southern Europe.
In 2012, China continued to drive the global tissue market expansion, and accounted for about 46% of the global tissue volume growth. Growth in Latin America was the second largest, exceeding the volume increases in North America and Eastern Europe.
North America: New Product Launches Dominate
Tissue consumption grew by an average growth rate of 1.5% in 2012, the us market even 1.8% but in canada the statistical figures give a -1.9% growth for apparent consumption, which lowers the North American growth correspondingly. We do not believe that the actual consumption declined but rather that parent roll stocks were reduced due to various reasons, for example Kruger closed two parent roll PMs at its new Westminster, BC, mill and the existing parent roll stock was sold out to converters.
Otherwise the North American year was characterized by tight supply in the first 8-9 months of the year before new capacity came on stream. new investments have been mainly driven by two factors: the need to produce more ultra category products, and the increasing parent roll requirements of the expanding AfH converting sector. Quality upgrading began in the At-Home tissue sector with retailers (led by Wal-Mart) wanting to upgrade their private label offerings close to the level of the leading or at least second-tier brands but now the same upgrading trend is to be seen also in the AfH sector. Three new TAD PMs (First Quality Tissue, Clearwater Paper and K.T.G. (USA/Kruger) and one ATMOS® tissue PM (Wausau Paper) were started up within a few months in late 2012-early 2013. In addition, Georgia-Pacific rebuilt two of its PMs for the second-generation “e-TAD” technology, a patented scheme developed by the company itself, and re-launched its bathroom tissue with improved softness in the last quarter of 2012. Wausau Paper has launched new structured AfH products in the market although the ultra brand “Artisan” will not be available before the beginning of 2014.
The fight between brands and private labels in the us consumer tissue market continued in 2012. Retailer labels have taken some market share from brands but the brand owners have reacted by quality upgrades and promotional efforts. Even Procter & Gamble lost some market share in the first half of 2012 but reacted in mid-2012, introduced new product versions and new pricing plus backed its brands by heavy campaigning. It also decided to addan “extra strong” version of its “Charmin” bathroom tissue to serve its clients who want in the European way more “safety” than softness, plus still upgraded the softness of its “ultra soft” bathroom tissue version. “Charmin Basic” was pushed heavily at retailers as an alternative to private labels. These efforts seem to have been successful, as P&G regained its market shares in the second half of the year and kept them since then.
Europe: Western Consumption Lulling but Eastern Markets Growing
Last year was disappointing in the Western European tissue industry, at least in terms of volume growth which did not exist at all! Economic problems continued in Southern Europe and although tissue is not very sensitive to economic cycles, impaired purchasing power and high unemployment hit the tissue business in Greece, Spain, Portugal and Italy in particular. From the other countries, France and the UK also had flat markets in 2012. There may be some revisions in the foreign trade figures later this year, as typical for some countries, including Germany and France, and we expect increases in import figures for the simple reason that Western Europe shows now, according to current statistics, a balanced foreign trade balance while the previous ten years all showed an import deficit of up to 100,000 tonnes and even more. net imports declined radically already in 2011 but that the balance now shows a small export surplus for 2012 is an issue we cannot see any specific reason, especially as there were very limited capacity additions in Western Europe.
Eastern Europe showed a sound growth of 7.5% in 2012. The region as a whole benefitted from the strong growth in its largest countries, Russia (11%), Poland (5.4%), the Ukraine (8.6%) and Romania (9.2%). But also Central Eastern Europe, where the tissue business experienced weak or negative expansion in 2011, the situation changed during 2012: both the czech republic and Hungary recorded strong rebounds and are again on the expansion track. In Hungary, the Higi papersoft mill was restarted early this year while in the czech republic, papirna cepap’s loucovice mill, the main tissue mill with a long tradition in the Czech paper industry, closed its doors in march 2012, and this was a permanent rather temporary closure. The Russian tissue market is in a dynamic phase now and is attracting new projects, some of which have been already announced and more are at the planning stage.
Latin America: Brazil Leading the Expansion
Latin American tissue consumption grew by 5.3% in 2012, mainly thanks to the strong Brazilian market. The Brazilian pulp and paper association (BRACELPA) has again revised its tissue production numbers and this time upward, so 2012 consumption growth was corrected from 7.2% to 8.3% very recently (we had the lower growth still in the Outlook for World Tissue Business report published in August). The second largest market, Mexico, also showed some albeit modest growth of 1.6% after three years of flat consumption, the reasons for which remain non-transparent to us.
In the other main markets, developments were varying in 2012. Colombia and Chile took a small breathing break after strong expansion in 2011, while Argentina turned into growth again and approached the benchmark of 300,000 tonnes in its tissue consumption in 2012. We consider that argentina has very good prospects for long-term tissue consumption growth but the instability governing the political and economic conditions have prevented a still quicker development. However, now at least one new PM investment has been decided (client confidential) and another new PM plan is in an advanced phase. Among other countries, Peru continues to expand and smaller Central American countries (Costa Rica, Guatemala, Honduras, among others) are also in a very strong growth phase.
The main problem child in Latin America is Venezuela where import restrictions and foreign currency regulations continue to hamper tissue mills to operate like in a free market economy. The Venezuelan paper association (APROPACA) has not yet published its statistics for 2012, but based on press reports about recent toilet paper shortage in the country it looks like that nothing has changed despite the death of president Chavez and new presidential election: the commando remained in similar hands as a heritage from Chavez. The country has sufficient tissue capacity to produce what the country needs, but the government does not play with the tissue companies’ plans. The only surprising news came from K-C announcing an expansion plan for its Venezuelan mill recently: it may be that there are some discussions going on for solving the tissue shortage publicly reported and such negative publicity may change the current regulations, although we are not very optimistic that any major change would take place in the near future.
Near and Middle East: Political Turmoil Did Not Hit All Countries
The growth in tissue consumption in the near and Middle East remained clearly lower in 2012 (4.4%) than in 2011 (9.2% based on the revised figures), affected by the political turbulences of a few countries (such as Syria) but even more by the flat market in Turkey (again, more stock changes affecting apparent consumption than any real break in actual consumption: growth was more than 15% in 2011). Iran seems to be in a very strong upswing phase despite trade and financial embargo regulations: tissue traders are clever for finding ways how to operate even in such difficult situations. Reportedly a lot of tissue rolls came from india, even though official foreign trade statistics show only modest trade flows between these two countries. In 2013, one large tissue PM was started up by Hayat Kimya in Iran, which is expected to ease the tight tissue supply situation in the country. Three to four other projects are in the pipeline but their completion dates are still uncertain because of the political and economic circumstances prevailing there.
Besides Turkey and Iran, tissue consumption is in a strong upward move also in Saudi Arabia and many other smaller countries in the region. new tissue projects are under consideration, and the united arab emirates with its low energy cost, qualified work force and business-minded bureaucracy has been able to attract companies to think the uae as the location for their investments.
China: Growth Continues But Investment Exploding
As earlier mentioned, we have adjusted China’s tissue consumption figures for 2011 and 2012 to avoid variations caused by stock changes and not corresponding to actual market developments. The adjustment mean that very strong growth of around 10% per year continued in 2011- 2012, supported by the millions of new consumers in hinterland China, particularly in Central China provinces where new tissue capacity has been and continues to be built. Tissue exports reached a new peak of almost 590,000 tonnes after a small decline in 2011.
In China the main issues are the huge number of new investments, mandatory and market-regulated closures, and consequently, the rapidly changing industry structure from small and medium-sized mills toward modern and globally cost-competitive mills that expand rapidly. The only fact is that the markets, including both the domestic and export markets, cannot absorb all the capacity being built in China just now. The consequences are two-fault: major project delays for new expansions, and on the other hand, accelerated closures of non-competitive mills, either in qualitative or economic terms, or both. Mill closures are currently running at a rate of 400,000 tonnes of capacity per year, a major contribution to help the overcapacity situation.
Japan’s tissue consumption grew by only 0.2% in 2012, after a stronger growth in 2011 (0.9%). It should be noted that Japan’s tissue imports, mainly from China, grew strongly and reached 100,000 tonnes in 2011 and almost 120,000 tonnes in 2012. The same trend seems to continue in 2013. The Japanese tissue industry is under an extreme pressure with its generally old machinery and high manufacturing cost structure.
Tissue consumption grew by 5.3% in the Asia Far East region, slightly slower than in 2011 (5.8%) but still above the long-term trend. The region is in principle in a positive growth mood, although the most densely populated countries such as India, Pakistan and Bangladesh still continue to await the real kick-off in their tissue markets.
In Oceania, the main issue is growing imports, mainly from China, as indonesian suppliers continue to suffer from the environmental concerns that stopped APP’s rapid expansion in the continent. APP is making efforts to convince its environmental record based on new certifications, and has gained some but still rather small improvement in its acceptance as a supplier. Imports are a major challenge to the domestic industry that has to improve its cost structure.
Africa: Positive Developments
African tissue consumption grew by 5.9% in 2012, surprisingly strong considering the negative developments in North Africa that continued to prohibit normal business life in the region. To our surprise, there were many positive developments in other parts of Africa, including West Africa, where tissue consumption had been flat for a few years with only some exceptions. In North Africa, Morocco has been less affected by the political turmoil and shows good growth, which may be accelerated by the new mill started up in late 2012.
Egypt has suffered most of the turbulences and its export activity was badly hindered by the new regulations of the new government restricting possibilities for necessary financial arrangements needed for export. As a consequence, Egypt’s tissue production and exports fell sharply while the domestic consumption was less affected but not supported by the new political changes.