U.S. Tissue Tracker: Converted Products Gain Strength

The following November 2015 statistics highlights for the U.S Tissue Industry were recently released by RISI, Boston, Mass., USA.

Converted product shipments 1.8% higher y/y (+2.1% 11 mo. YTD). Total At-Home (consumer) shipments of converted tissue products increased 1.3% y/y in November 2015 (+1.7% 10 mo. YTD), with toilet paper volumes up 1.3% y/y, towels ahead 1.8%, and facial volumes flat y/y. Total Away-from-Home (AfH) shipments of converted tissue products rose 3.0% y/y (+3.0% 11 mo. YTD), with toilet paper volumes up 2.9%, towels ahead 2.4%, and napkin volumes 2.5% higher than a year ago. 

Parent roll production increased 0.4% y/y (+1.5% 11 mo. YTD). Parent roll production was 694,000 tons, up 0.4% y/y (-1.6% m/m). Domestic parent roll consumption was 709,000 tons, up 0.3% y/y (+1.4% 11 mo. YTD) and 1.5% lower m/m.

Higher operating rates m/m. Operating rates increased from 91.1% in October to 92.7% in November (-1.1% y/y), with monthly capacity up 1.6% y/y (+2.0% 11 mo. YTD).

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 ~95,000 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 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 to a low of 87.8% in 2018. In addition to North American 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 production into the U.S. market. RISI reported that negotiations for Lincoln's Paper and Tissue mill (~200 tons of tissue per day) are still underway. Farther 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 November to $1,359/ton, up 0.7% from October (+4.1% y/y). Recycled parent roll prices were marginally higher, with the high-quality grade at $1,125/ton, ahead 0.7% m/m (flat 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, we note that some branded producers experienced price declines during the quarter. On the AfH side, the 65–8% 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); (604) 257-7048. 
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