U.S. Tissue Tracker: Strong Shipments in April, AfH Continues to Drive Growth

Converted product shipments 1.9% higher y/y (+2.0%, four month YTD). Total U.S. At-Home (consumer) shipments of converted tissue products increased 1.5% y/y in April (+1.6%, four months YTD), with toilet paper volumes up 1.4%, towels up 1.8%, and facial volumes unchanged from a year ago. Total Away-from-Home (AfH) shipments of converted tissue products rose 2.8% y/y (+2.7%, four month YTD), with toilet paper volumes up 2.5%, towels up 2.2%, and napkin volumes 2.6% higher than a year ago.

Parent roll production increased 1.9% y/y (+1.7%, four month YTD). Parent roll production was 707,000 tons, 1.9% higher than a year ago (-1.1% m/m). Domestic parent roll consumption was 716,000 tons, up 2.0% y/y (+1.7%, four month YTD), and 1.1% lower m/m.

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 ~95,000 tpy growth in existing capacity, implying that the market requires at least one new 70,000 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 we expect to come online during the next three years. While we do 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 prod-to-cap basis) falling from 94.0% in 2014 to a low of 87.3% in 2017. 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 up m/m for both virgin and recycled grades. High-quality virgin parent rolls experienced an uptick for the third month in a row in April to $1,310/ton, up 0.2% from March (+0.7% y/y). Recycled parent roll prices were also higher, with the high-quality grade at $1,080/ton, up 0.2% m/m (-6.3% y/y). While converted product consumer prices saw high-single-digit declines in 2014, prices appear to have stabilized for bath tissue/facial since February 2015.