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RBC Tissue Tracker: Half the Capacity Adds Expected in 2015 Pushed Out to 2016

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December 2014 U.S. tissue statistics by RBC Dominion Securities have been released by RISI. Below are highlights for converted product shipments, parent roll output, operating rates, and planned capacity.
Converted product shipments 2.5% higher y/y (+1.9% in 2014)—Total At-Home (consumer) shipments of converted tissue products increased 2.0% y/y in December (+1.7% in 2014), with toilet paper volumes up 1.4%, towels up 2.4%, and facial 3.0% higher than a year ago. Total Away-from-Home (AfH) shipments of converted tissue products increased 3.8% y/y (+2.2% in 2014), with toilet paper volumes up 3.0%, towels up 4.1%, and napkin volumes 2.6% higher than a year ago.
Parent roll production up 2.4% y/y (+1.1% in 2014)—Parent roll production was 687,000 tons, 2.4% higher than a year ago (-0.6% m/m). Domestic parent roll consumption was 705,000 tons, up 2.8% y/y (+1.1% in 2014) and down 0.3% m/m.
Lower operating rates m/m—Operating rates moved from 93.8% in November to 90.3% in December (-100 bps y/y), with monthly capacity 3.5% higher y/y (+1.4% in 2014). The full-year operating rate in 2014 of 94.2% was only slightly below the 94.4% rate in the prior year.
Less capacity expected to come online in 2015—RISI has pushed out 230,000 tpy of new capacity it originally expected would come online in 2015 (P&G's potential second TAD at Box Elder, Utah, and the two "confidential" machines that Valmet was originally set to deliver in 2014). Although RISI is still showing all three in its supply outlook (for 2016 startup now), it notes that "at least one or two are not moving forward at the moment." While these postponements should support a tighter tissue market, we note that RISI also mentioned talk in the trade that Sofidel's Cellynne business is looking at adding a tissue machine to target the consumer market.

Tissue market can support additional capacity (in moderation)—As discussed in our latest deep-dive report on tissue, the N.A. industry must increase capacity by ~160,000 tpy to meet demand growth of ~1.6%/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 annum to stay in balance. Factoring in likely capacity shuts, some in the industry believe that 2.5 new 70,000 tpy machines per annum are needed to meet rising demand. With several projects coming online over H215–H216 from APP (two new 66,000 tpy machines) and First Quality (two new TADs in addition to the planned ATMOS), we may see some producers shut some of their older, higher cost capacity to optimize their mill systems. 

RBC Dominion Securities Inc.
Paul C. Quinn (Analyst) (604) 257-7048; paul.c.quinn@rbccm.com

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