September 2017 USA Tissue Tracker: End of Summertime Slowdown

The slower summer season wrapped up as shipments of converted tissue products were back to normal levels and operating rates saw a significant m/m improvement (marginally better y/y). Converted product shipments returned to their trend growth line, driven by growth from the Away-from-Home (AfH) segment. Parent roll production increased y/y, but was below the 10-year September average.

Converted product shipments 1.9% higher y/y (+1.8% YTD) – Total At-Home (consumer) shipments of converted tissue products increased 1.4% y/y, mainly driven by bathroom tissue (+1.2% y/y) and toweling (+1.7% y/y), which accounts for ~52% and ~35% of shipments, respectively. Facial tissue shipments were up 3.7% y/y, while napkin shipments were flat. Total AfH shipments of converted tissue products continued to show strength, increasing 3.0% y/y (+2.8% YTD). For AfH, bathroom tissue volumes grew 4.0% y/y, towels rose 2.9% y/y, and napkin volumes were up 2.3% y/y.

Parent roll production was +1.2% y/y (+2.0% YTD) – Parent roll production was 754,000 tons in September, up 1.2% y/y (+2.6% m/m). Domestic parent roll consumption was 771,000 tons, 0.1% higher y/y (+1.3% YTD), and was up 2.0% m/m from the revised August figure.

Operating rates decreased slightly y/y to 96.5% (from 96.6% in 2016) – Operating rates increased as expected m/m from 91.1% in August. The 96.5% operating rate compares favorably with the 10-year September average of 95.9%. Mill capacity was up 1.3% y/y (-3.2% m/m).

Net U.S. tissue imports were down 8.6% y/y (represent only ~5% of consumption) – Net U.S. tissue imports fell 8.6% y/y (+3.6% YTD) in August (latest customs data). U.S. exports of converted tissue products were down 4.0% y/y, while volumes exported to Canada increased 0.9% y/y.

Parent roll prices q/q – High-quality virgin parent roll prices saw some strength in September, with prices up 0.2% m/m (+2.3% y/y) to $1,417/ton. Recycled parent roll prices increased m/m, with high-quality rolls at $1,156/ton (+$5 m/m; +1.9% y/y) and the low-quality rolls up +5.6% y/y to $960/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 $400MM TAD tissue PM in Palatka, Fla., in 2019. Irving Consumer Products is expecting delivery of a new TAD tissue making 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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