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USA Tissue Tracker: Converted Products Gain Strength

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According to U.S. tissue industry statistics just released by RISI, Boston, Mass., converted tissue and towel product production and shipments increased in December 2015. Highlights for December and full-year 2015 are presented below. 

Converted product shipments 2.0% higher y/y (+2.1% in 2015). Total At-Home (consumer) shipments of converted tissue products increased 1.5% y/y in December (+1.7% in 2015), with toilet paper volumes up 1.4% y/y, towels ahead 2.4%, and facial volumes flat y/y. Total Away-from-Home (AfH) shipments of converted tissue products rose 3.1% y/y (+3.0% in 2015), with toilet paper volumes up 2.9%, towels ahead 3.9%, and napkin volumes 2.6% higher than a year ago.
Parent roll production increased 1.6% y/y (+1.5% in 2015). Parent roll production was 698,000 tons, up 1.6% y/y (+0.6% m/m). Domestic parent roll consumption was 713,000 tons, up 1.4% y/y (+1.4% in 2015) and 0.6% m/m. 

Lower operating rates and higher shipments. Operating rates decreased from 92.7% in November to 90.2% in the month of December; monthly capacity was up 3.3% over the same period. For 2015, operating rates were down 0.4% y/y; shipments were up 1.5% over 2014 levels.

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 ~95K 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 that 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 operating rates (on a production-to-capacity basis) falling from 94.0% in 2014 and 2015 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 of production into the U.S. market. RISI reported that negotiations for the Lincoln Paper and Tissue mill (~200 tons of tissue per day) are still under way. Further ahead, Tranlin's $2 billion paper manufacturing mill will start partial production in 2018.

Parent roll prices higher m/m for virgin and recycled grades. High-quality virgin parent rolls experienced a small increase in December to $1,363/ton, up 0.3% from November (+4.7% y/y). Recycled parent roll prices were marginally higher, with the high-quality grade at $1,130/ton, ahead 0.4% m/m (+4.6% y/y).

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