Supply Side Perspectives and Global Tissue Trade

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The strong demand outlook for the North American tissue market is attracting new investments from key competitors, which may adversely impact operating rates. However, perhaps a bigger concern is how foreign trade will develop in the future. In this report, Pöyry takes a closer look at North American supply trends and the outlook for foreign trade.

Since 2001, tissue supply in North America has grown in line with demand, with capacity increasing at an average annual rate of 1.4%/a (123,000 tons per year). Operating rates are among the highest in the paper industry, but have recently come under pressure as a result of the economic downturn that began in 2007. Installed capacity in 2009 was 9,391,000 short tons and production was 8,136,000 tons. (See Figure 1.)

Planned Tissue Projects
The strong demand growth outlook for the tissue market in North America is attracting new investments. Operating rates are currently lower than what has been observed in the past due to the demand declines observed in 2007 and 2008. As the market continues to rebound, operating rates will improve. However, the new capacity installments planned for 2011-2013, may impede the speed at which operating rates improve.

Investments totaling 468,000 tons of capacity have been announced to become operational by 2013. Increased competition from imports may also adversely impact operating rates in the future.

Tissue Trade
A significant issue for the tissue market in North America is how foreign trade will develop. Tissue trade has increased substantially in almost all regions of the world. Both imports and exports in Western Europe have increased substantially; however trade is inter-regional. Exports from other Asian countries such as Indonesia have recently grown at a much faster pace. Since 2000, exports from Asian countries (excluding Japan and China) have increased at an average annual rate of 11.3% per year. Exports from China have also grown at a rapid pace, increasing at an average annual rate of 14.8% per year.

A major market for these imports is North America. Imports to North America have grown at an average annual rate of 5.2% since 2000. However, although imports are growing rapidly, they still represent a small proportion of North American consumption (approximately 4.5% in 2009). Exports from North America, although growing, have grown at a slower pace of 1.6% per year since 2000.

Interestingly, foreign competitors have also established a presence in North America. For example, APP/Sinar Mas Group has converting operations in Santa Fe Springs, Calif., and Strasburg, Va., (Solaris Paper and Mercury Paper, respectively) and a sales and marketing subsidiary in the U.S. For both operations, parent rolls are imported from tissue mills in Asia and converted in the U.S. to be sold in the North American market. (See Figure 2 and Figure 3.)

Takeaway
The stable growth outlook for the tissue market in North America is attracting new investments. As the market continues to rebound, operating rates will improve. However, new capacity installments planned for 2011-2013, combined with increasing competition from imports, may adversely impact operating rates in the long-term. Supply discipline may become an increasingly important factor in the future and higher cost machines may have to shutdown to maintain a tight market.