U.S. Tissue Tracker: Glimmer of Hope

RISI's (Boston, Mass., USA, U.S. tissue stats for July 2016 show that production and converted product shipments both increased y/y, while operating rates declined over the same period (and m/m). Parent roll prices inched up m/m and were higher on a y/y basis.

Net tissue imports jumped 36.5% y/y. Net imports were 5.1% higher m/m (+36.5% y/y) in June (latest customs data). U.S. exports of converted tissue products were down 3.9% y/y in June, while Canadian volumes increased 0.5%. U.S. net imports of parent rolls jumped 39.9% y/y (-10.1% m/m) in July.

Converted product shipments 1.9% higher y/y (+1.9% YTD). Total At-Home (consumer) shipments of converted tissue products increased 1.3% y/y in July (+1.6% YTD), with toilet paper volumes up 0.8% y/y, towels gaining 1.8%, and facial volumes up 3.8%. Total Away-from-Home (AfH) shipments of converted tissue products rose 3.3% y/y (+2.7% YTD), with toilet paper volumes growing 3.1%, towels ahead 4.4%, and napkin volumes up 2.1% from a year ago.

Parent roll production up 1.3% y/y (+1.3% YTD). Parent roll production was 719,000 tons, up 1.3% y/y (-3.6% m/m). Domestic parent roll consumption was 742,000 tons, up 2.2% y/y (+2.4% YTD) but down 3.8% m/m.

Lower operating rates m/m. Operating rates decreased from 97.4% in June to 90.2% in July (-2.0% y/y); monthly capacity was up 4.0% m/m (+3.2% y/y).

Tissue market can support additional capacity (in moderation). As discussed in our latest deep-dive report on tissue, the North American 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. Factoring in likely capacity shuts, some in the industry believe that 2.5 new 60,000 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 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 North American 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 production into the U.S. market.

Parent roll prices slightly higher m/m for virgin and recycled grades. High-quality virgin parent rolls inched up in July to $1,365/ton, up 0.7% from June (+2.8% y/y). Recycled parent roll prices were marginally higher, with the high-quality grade at $1,127/ton, ahead 0.5% m/m (+2.1% y/y).

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