RISI, Boston, Mass., USA, has released its October 2016 U.S. Tissue statistics, showing that mill operating rates have decreased but shipments have risen. Highlight of the report include:
Converted product shipments 2.7% higher y/y (+2.1% 10mo. YTD).Total At-Home (consumer) shipments of converted tissue products increased 1.9% y/y in October (+1.7% 10mo. YTD), with toilet paper volumes up 1.7% y/y, towels ahead 2.5%, and facial volumes up 3.1% y/y. Total Away-from-Home (AfH) shipments of converted tissue products rose 4.3% y/y (+3.0% 10mo. YTD), with toilet paper volumes up 5.1%, towels ahead 3.9%, and napkin volumes 2.4% higher than a year ago.Parent roll production decreased 0.7% y/y (+1.6% 10mo. YTD). Parent roll production was 705,000 tons, down 0.7% y/y (-2.5% m/m). Domestic parent roll consumption was 720,000 tons, down 1.4% y/y (+1.5% 10mo. YTD) and 2.3% lower m/m.
Lower operating rates m/m. Operating rates decreased from 96.8% in September to 91.1% in October (-220 bps y/y), with monthly capacity up 1.7% y/y (+2.0% 10mo. YTD) due to new capacity from Cascades, Double Tree, and Orchids.
Tissue market can support additional capacity (in moderation). As discussed in RISI’s latest deep-dive report on tissue, the North American industry must increase capacity by ~160,000tpy to meet demand growth of ~1.5%/yr. RISI estimates that industry "creep" leads to ~95,000tpy growth in existing capacity, implying that the market requires at least one new 70,000tpy machine per year to stay in balance. Factoring in likely capacity shuts, some in the industry believe that 2.5 new 70,000tpy machines per year are needed to meet rising demand. The challenge facing the market is the ~280,000tpy of new capacity expected to come online over the next three years. While RISI does expect older, relatively higher-cost capacity to be removed from the market over this period, it does not forecast unannounced capacity reductions in its supply/demand model. As such, it sees industry operating 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 American capacity adds, RISI sees additional imports coming from FPC Tissue's NTT machine in Chile, which plans to sell 90% of its 66,000metric tpy of production into the U.S. market. That said, while Pulp & Paper Week reported that Lincoln Paper and Tissue (which filed for bankruptcy on September 28) has a bidder for its assets (tissue paper machines), it is still unclear whether the buyer is interested in operating the machines or if it will remove the capacity (~200 tons of tissue per day). RISI highlighted that on October 13, SCA announced its plans to acquire Wausau Paper Corp. in an all-cash transaction of $513 million (and $174miullion of assumed Wausau debt). The deal is expected to close during Q1 2016.
Parent roll prices higher m/m for virgin and recycled grades. High-quality virgin parent rolls experienced a small increase in October to $1,350/ton, up 0.4% from September (+2.4% y/y). Recycled parent roll prices were marginally higher, with the high-quality grade at $1,117/ton, ahead 0.2% m/m (-1.6% y/y). While converted product consumer prices saw high-single-digit declines in 2014, prices largely stabilized for bath tissue/facial since February 2015. In fact, private label aimed to increase prices by 3%–5% earlier this year, and on its Q3 call, CLW commented that the increase was successful. However, RISI notes that some branded producers experienced price declines during the quarter. On the AfH side, the 6%–8% price increase started to take effect in October. However, RISI noted that only a small part of businesses will be affected due to the dominance of longer-term contracts. Von Drehle Corp. is the only producer whose price increase took effect on November 1.
RBC Dominion Securities Inc.
Paul C. Quinn (Analyst) is also available by phone as well as e-mail at (604) 257-7048.
