USA Tissue Tracker: New Capacity Beginning to Impact the Market

The stats highlight a pickup in both production and capacity, while converted product shipments growth slowed. Below are summary reports of the key U.S. tissue statistics fro April 2016. 

   

Converted product shipments 1.5% higher y/y (+2.0% 4 Mo. YTD) – Total At-Home (consumer) shipments of converted tissue products increased 1.1% y/y in April (+1.6% 4 mo. YTD), with toilet paper volumes up 1.4%, towels ahead 1.7%, and facial volumes flat. Total Away-from-Home (AfH) shipments of converted tissue products rose 2.3% y/y (+2.8% 4 Mo. YTD), with toilet paper volumes growing 2.5%, towels rising 2.2%, and napkin volumes up 2.5% from a year ago. 

Parent roll production up 1.6% y/y (+1.1% 4 Mo. YTD) – Parent roll production was 718,000 tons, up 1.6% y/y (-1.8% m/m). Domestic parent roll consumption was 735,000 tons, up 2.0% y/y (+2.0% 4 Mo. YTD), but down 1.9% m/m.

Operating rates fell slightly on new capacity adds – Operating rates decreased from 94.2% in March to 93.7% in April (-1.0% y/y); monthly capacity was up 2.5% over the same period (+2.5% 4 Mo. YTD).

Tissue market can support additional capacity (in moderation) – As discussed in our latest deep-dive report on tissue, the N.A. industry must increase capacity by ~160,000 tpy to meet demand growth of ~1.5%/yr. We estimate that industry "creep" leads to ~100,000 tpy growth in existing capacity, implying that the market requires at least one new 60,000 tpy machine per year to stay in balance. Factoring in likely capacity shuts, some in the industry believe that 2.5 new 70,000 tpy machines per year are needed to meet rising demand. 

The challenge facing the market is the ~280,000 tpy of new capacity that we expect to come online during the next three years. While we expect older, relatively higher-cost capacity to be removed from the market over this period, we do not forecast unannounced capacity reductions in our supply/demand model. As such, we see industry opeating rates (on a production-to-capacity basis) falling from 94.0% in 2014 and 2015 to a low of 89.7% in 2018. In addition to N.A. capacity adds, we see additional imports coming from FPC Tissue's NTT machine in Chile, which plans to sell 90% of its 66,000 tpy of production into the U.S. market.

 

Parent roll prices higher m/m for virgin and recycled grades – High-quality virgin parent rolls inched up in April to $1,357/ton, up 0.1% from March (+3.6% y/y). Recycled parent roll prices were marginally higher, with the high-quality grade at $1,130/ton, ahead 0.3% m/m (+4.1% y/y).