USA Tissue Tracker: Hanging in There

RISI's (Boston, Mass., USA) U.S. tissue stats for August have been released. Parent roll production and converted product shipments increased y/y (and m/m), while imports remain elevated and the effect of new capacity from spring startups is starting to show up in operating rates. 

Parent roll prices for both virgin and recycled grades inched up 0.5% m/m (+2.5 - 3.0% y/y). The following summarizes RISI’s key stats for the month: 

Converted product shipments 1.4% higher y/y (+1.9% 8mo YTD). Total At-Home (consumer) shipments of converted tissue products increased 1.2% y/y in August (+1.5% 8 month YTD), with toilet paper volumes up 1.2% y/y, towels gaining 1.9%, and facial volumes flat y/y. Total Away-from-Home (AfH) shipments of converted tissue products rose 1.9% y/y (+2.6% YTD), with toilet paper volumes growing 1.6%, towels ahead 2.8%, and napkin volumes flat from a year ago.

Parent roll production up 2.1% y/y (+1.4% 8mo YTD). Parent roll production was 724,000 tons in August, up 2.1% y/y (+0.7% m/m). Domestic parent roll consumption was 747,000 tons, up 3.2% y/y (+2.5% YTD), and up 0.7% m/m.

Operating rates edged higher in August after a sharp drop off in July. Operating rates edged higher from 90.2% in July to 90.8% in August (-1.1% y/y), which is lower than the 10-year August average of 93.9%. Monthly capacity was up 3.2% y/y (flat m/m), largely due to the startups of three large tissue PMs (two by APP/St. Croix Tissue, one TAD by First Quality Tissue), and one smaller PM by von Drehle Corp.

Net U.S. tissue imports jumped 26.7% y/y (though only represent ~5% of consumption). Net U.S. imports increased 26.7% y/y (43.1% YTD) in July (latest customs data). U.S. exports of converted tissue products were up 4.3% y/y in July, while Canadian volumes increased 9.2%. U.S. net imports of parent rolls jumped 52.3% y/y (+1.7% m/m) in August.

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. 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 duringr the next three years. While we expect older, relatively higher-cost capacity to be removed from the market during 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 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 August to $1,372/ton, up 0.5% from July (+2.9% y/y). Recycled parent roll prices were marginally higher, with the high-quality grade at $1,133/ton, ahead 0.5% m/m (+2.5% y/y).

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