November 2017 U.S. tissue industry stats were slightly weaker compared with October 2017, but monthly fluctuations are not uncommon and the overall growth trend is still expected to continue. Converted product shipments grew by +2.1% y/y, with the AfH (Away from Home) segment continuing to show strength (+3.3% y/y), along with relatively strong At-Home shipments (+1.5% y/y). Virgin parent roll prices increased slightly m/m, while recycled parent roll prices dipped again m/m, albeit very marginally.

Converted product shipments 2.1% higher y/y (+1.9% YTD). Total At-Home (consumer) shipments of converted tissue products increased 1.5% y/y, mainly driven by bathroom tissue (+1.3% y/y) and toweling (+1.7% y/y), which typically account for ~50% and ~35% of shipments, respectively. Facial tissue shipments were up 3.0% y/y, while napkin shipments were flat. Total AfH shipments of converted tissue products continued to show strength, increasing 3.3% y/y (+2.9% YTD). For AfH, bathroom tissue volumes grew 4.1% y/y, towels rose 3.4% y/y, and napkin volumes were up 2.4% y/y.

Parent roll production was +1.0% y/y (+1.9% YTD). Parent roll production was 710,000 tons in November, up 1.0% y/y (-6.0% m/m). Domestic parent roll consumption was 729,000 tons, 1.0% higher y/y (+1.2% YTD) and -5.4% m/m.

Operating rates slightly slower y/y at 90.9% (from 91.2% in 2016). Operating rates fell m/m from 93.6%. The 90.9% operating rate in November is lower than the 10-year November average of 92.8%. Effective mill capacity was up 1.3% y/y (-3.2% m/m).

Net U.S. tissue imports up 0.2% y/y (represent only ~5% of consumption). Net U.S. tissue imports were up 0.2% y/y (+0.3% YTD) in November (latest customs data). U.S. exports of converted tissue products were +1.3% y/y, while volumes exported to Canada were up 23.7% y/y.

Virgin parent roll prices up marginally m/m, but recycled prices dipped for the second straight month. High-quality virgin parent roll prices were slightly higher in November, with prices +0.6% m/m (+3.3% y/y) to $1,420/ton. Recycled parent roll prices were marginally lower m/m, with high-quality rolls at $1,153/ton (-$1 m/m; +2.9% y/y) and low-quality rolls up +7.2% y/y to $957/ton.

Capacity closures counterbalancing new tissue PMs in the pipeline. Recent tissue machine closures should help to offset some of the capacity coming online. The largest closure in 2017 occurred in June when Essity (formerly SCA) closed its Flagstaff, Ariz., tissue plant (63,000 tons). We expect tissue makers to continue to retire older machines as newer PM's are brought online (we assume ~50K tons in capacity closures for 2018 and 2019). On the capacity add front, Sofidel is bringing on two NTT machines in Ohio in 2018 while ST Tissue is putting in a conventional machine in Maine. First Quality Tissue also has two new TAD machines coming online as a part of its expansion initiatives (~140,000 tons of additional capacity). One machine will be in Anderson, S.C., and is expected to begin production in the Q418, while the other will be in Lock Haven, Pa., and is projected to start in Q219 (First Quality also has a non-TAD machine in Anderson that could be started up in 2019). Georgia-Pacific is scheduled to start a $400 million TAD tissue PM in Palatka, Fla., in 2019. Irving Consumer Products is expecting delivery of a new TAD tissue machine from Valmet in late 2018/early 2019 at its Macon, Ga., greenfield project (75,000 ST/yr.; we estimate that production starts in Q319, but this could vary slightly). 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 Q119).

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

 

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