USA Tissue Tracker: Healthy AfH Shipment Growth Continues

Converted product shipments 2.0% higher y/y (+2.0% 5 mo. YTD). Total At-Home (consumer) shipments of converted tissue products increased 1.7% y/y in May (+1.6% 5 mo. YTD), with toilet paper volumes up 1.3%, towels up 1.7%, and facial volumes 2.9% higher than a year ago. Total Away-from-Home (AfH) shipments of converted tissue products rose 2.6% y/y (+2.6% 5 mo. YTD), with toilet paper volumes up 2.6%, towels up 1.9%, and napkin volumes 2.3% higher than a year ago.

Parent roll production increased 1.7% y/y (+1.7% 5 mo. YTD). Parent roll production was 738,000 tons, 1.7% higher than a year ago (+4.4% m/m). Domestic parent roll consumption was 749,000 tons, up 1.3% y/y (+1.8% 5 mo. YTD) and 3.9% higher m/m.

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 ~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 over 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 op. rates (on a prod-to-cap basis) falling from 94.0% in 2014 to a low of 87.8% in 2018. In addition to North America 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 higher m/m for both virgin and recycled grades. High-quality virgin parent rolls experienced an uptick for the fourth month in a row in May to $1,313/ton, up 0.2% from April (-0.4% y/y). Recycled parent roll prices were also higher, with the high-quality grade at $1,087/ton, up 0.2% m/m (-5.5% 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. While converted product consumer prices saw high-single-digit declines in 2014, prices appear to have largely stabilized for bath tissue/facial since February 2015. Two weeks ago, RISI reported that Clearwater announced a private-label consumer tissue price hike for August/September. This increase, similar to First Quality's attempt last summer calling for an 8% increase, will likely fail if not soon matched by P&G and/or Kimberly-Clark. The mid-2014 AfH price hike (8%–10%) finished its partial implementation by Q215.