USA Tissue Tracker: Higher March Shipments, Operating Rates

According to data released by RISI, Boston, Mass., USA, U.S. parent roll and converted product tissue shipments and mill operating rates increased in March 2016. Below are highlights of the RISI March Tissue Tracker report.  

 

Converted product shipments 2.3% higher y/y (+2.1% 3 Mo. YTD). Total At-Home (consumer) shipments of converted tissue products increased 2.0% y/y in March (+1.7% 3 mo. YTD), with toilet paper volumes up 1.6% y/y, towels ahead 2.0%, and facial volumes growing 2.9% y/y. Total Away-from-Home (AfH) shipments of converted tissue products rose 3.2% y/y (+3.0% 3 Mo, YTD), with toilet paper volumes growing 2.9%, towels rising 3.7%, and napkin volumes up 2.9% from a year ago.

Parent roll production increased 2.2% y/y (+1.2% 3 Mo. YTD). Parent roll production was 731K tons, up 2.2% y/y (+9.1% m/m). Domestic parent roll consumption was 709K tons, up 3.0% y/y (+1.9% 3 Mo. YTD) and 8.7% higher m/m.

Higher operating rates and shipments. Operating rates increased from 92.3% in February to 94.2% in March (+1% y/y), with monthly capacity up 1.3% y/y (+3.1% 3 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 ~160K tpy to meet demand growth of ~1.5%/yr. We estimate that industry "creep" leads to ~100K tpy growth in existing capacity, implying that the market requires at least one new 60K tpy machine per year to stay in balance. Factoring in likely capacity shuts, some in the industry believe that 2.5 new 70K tpy machines per year are needed to meet rising demand. The challenge facing the market is the ~280K tpy of new capacity that we expect to come online over 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 operating 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 66K tpy production into the U.S. market.

Amendment to capacity improves market fundamentals slightly. According to RISI, Nippon Paper's 20K tpy mill in Port Angeles, Wash., did not come online as expected in 2015 (produced "less than 1,000 tons), so we have removed it from our capacity model (Exhibit 28). Considering this and the reported sale of one of Lincoln Paper's machines (which makes it unlikely for its 76K mill to ever restart), we now estimate a net of 87K of new supply online in 2015. Further ahead, Tranlin's $2 billion paper manufacturing mill will start partial production in 2018.

Parent roll prices steady m/m for virgin and recycled grades. High-quality virgin parent rolls inched down in March to $1,355/ton, down 0.1% from February (+3.7% y/y). Recycled parent roll prices were flat, with the high-quality grade at $1,127/ton (+4.5% y/y).

RBC Dominion Securities Inc. Paul C. Quinn (Analyst), (604) 257-7048.