U.S. Tissue Operating Rates Climbed Higher in February

Converted U.S. tissue product shipments and parent roll production were higher y/y, while operating rates increased m/m to 94.9%, in line with the 10-year average for February, according to RISI’s (Boston, Mass., USA) U.S. tissue stats for February. Key data from the report include:

Converted product shipments 1.8% higher y/y. Total at-home (consumer) shipments of converted tissue products increased 1.4% y/y and are 1.6% higher YTD. This strength was attributable to higher volumes in bathroom tissue (+1.4% y/y; +1.6% YTD) and towel (+1.8% y/y; +1.8% YTD). Total away-from-home (AfH) shipments of converted tissue products also showed strength, increasing 2.7% y/y. For AfH, bathroom tissue volumes grew 4.0% y/y (+3.2% YTD), towels rose 3.0% y/y (+2.0% YTD), and napkin volumes were flat y/y (flat YTD).

Parent roll production rose 3.0% y/y. Parent roll production was 690,000 tons in February, up 3.0% y/y (-4.8% m/m; +2.4% YTD). Domestic parent roll consumption was 706,000 tons, 2.9% higher y/y and down 4.8% m/m (+2.4% YTD).

Operating rates in line with the 10-year February average. Operating rates were higher m/m at 94.9% (from 90.2% in January and 92.3% last year). This is in line with the 10-yr. February average of 94.7%. Mill capacity was up 0.1% y/y (-9.6% m/m).

Net U.S. tissue imports increased y/y (though they represent only ~6% of consumption). Net U.S. tissue imports increased 17.1% y/y in January (latest customs data). U.S. exports of converted tissue products were up 1.2% y/y in January, while Canadian volumes declined 1.8% y/y during the same period.

Parent roll prices were higher m/m for virgin and recycled grades. High-quality virgin parent rolls were up $10/ton m/m in February at $1,377/ton (+0.7% m/m; +1.5% y/y), while low-quality virgin parent rolls increased 0.9% m/m (+2.1% y/y). Recycled parent roll prices improved slightly, with the high-quality grade at $1,131/ton, up 0.7% m/m (+0.4% y/y), and the low-quality grade seeing a 1.2% m/m uptick (+0.9% y/y).

Four tissue PMs in the pipeline (three TAD and one NTT). There were no new capacity change announcements in February. As stated before, Irving Consumer Products is expecting delivery of a new TAD tissue-making machine from Valmet in 2018 (RISI estimates capacity to be about 70,000 ST/year). First Quality Tissue also has two new TAD machines coming online as a part of its expansion initiatives. One machine will be constructed in Anderson, S.C., and is expected to begin production in the second half of 2018, while the other will be in Lock Haven, Pa., and is projected to start in the first half of 2019. These two machines will add ~145,000 tons of production capacity. Additionally, Clearwater plans to build a new Valmet NTT tissue machine at the company's existing facility in Shelby, N.C., with an expected annual capacity of 70,000 tons spread across high-quality private-label premium and ultra-premium tissue products (expected to come online in the first quarter of 2019). In terms of closures, Clearwater Paper closed its Oklahoma City converting facility and two tissue machines in Neenah, Wis., which removed 32,000 tons of production capacity.

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