Amid changes in consumer habits and recent economic and political turmoil, one thing is certain, the tissue market is dynamic and responding quickly to market needs. In the following article, we will take a look at several drivers (and obstacles) of consumption and growth in the North American and global tissue market and their potential impact on market trends in upcoming years.  

Recent global trends

China has been the largest producer country since 2015, surpassing the US to become the largest consumer country in 2018. Indeed, preliminary data indicate that China’s tissue market consumption grew larger than Western Europe’s, coming in second and nearly approaching the consumption magnitude of North America; i.e.: the world consumption leader taking in 24.5% of world tissue market share (see Figure 1). Rounding up the top five are Latin America and far East Asia which are becoming increasingly important regions as well, considering they took in 11.1% and 6.2% of global market consumption, respectively. The rest of the world trails behind with Eastern Europe taking in 5.6%; Japan 5.1%; the MENA region 4.1%; Africa 2.3%; and lastly Oceania with 1.2% of the global consumption share.

Figure 1World tissue consumption by region in 2018

“GROWTH IN THE GLOBAL TISSUE MARKET HAS BEEN RECOVERING IN THE PAST DECADE”

It should be taken in consideration that growth in the global tissue market has been recovering in the past decade. There has been relatively stable growth until the Great Recession in 2009 which saw a 66% decrease in volume growth reflecting the general state of the markets. Yet demand recuperated by 2015-2017 and this period saw strong growth. Most recently, this was followed by slowed development in 2018 due to a slower growth in China and Western Europe (see Figure 2). Indeed, the main change in 2018 was that growth in China was only half of that recorded in 2017 reflecting the country’s economy cooling down in 2018’s fourth quarter under pressure from faltering domestic demand and bruising U.S. tariffs, dragging 2018 growth to the lowest level in nearly three decades. Similarly, development in Japan contracted and Western European growth slowed further. Meanwhile, as emerging markets, Eastern Europe, Asia Far East, and Africa showed more positive developments (see Figure 3). Despite the recession, and the ensuing slump in growth, total global growth between 2008 and 2018 was a whopping 10.8 million tonnes, equivalent to 1.08 million tonnes per year. During this period, China accounted for 43% of growth, followed by North America (12%), and Latin America (11%) (see Figure 4).  

 

Figure 2Growth in the global tissue market

 

Figure 3Growth rates in percent from 2017 to 2018

 

Figure 4Volume growth of tissue consumption (2008-2018)

 

 

North American outlook

North American market and trade wars

The North American tissue market has been strong recently. Especially following the 2005 – 2010 period which saw a major setback due to the great recession which saw middle-class households' wealth fall 35% from 2005 to 2011.

Before the recession, the average growth accelerated from an average of 1.5% from 2001 to 2006, up to an average of 1.9% per year after the recession, starting 2011 (see Figure 5). Interestingly, the Away from Home (AfH) sector in particular benefitted from the strong economy, low gasoline prices, and changing lifestyle of younger generations. More specifically, in the past decade, Canada continued to be the United States’ main source of tissue import with 346 thousand tonnes in 2018, but China has taken second place ahead of Mexico and Indonesia (see Figure 6).

Figure 5North American market growth

 

Figure 6US Import volumes

 

 

As trade wars dominate headlines, industry insiders will keep a watchful eye on the supply pattern changes that will likely ensue. Canada imposed a 10% duty on imports of certain goods from the USA, including tissue, effective July 1, 2018, as a protest to US taxes for steel and aluminum. However, the US trade statistics do not show any major decrease in tissue exports to Canada since then, and this tariff has since been removed. Import tariffs will restrict imports from China; in fact, the first five months of 2019 already show decreases in the volume of Chinese tissue imported by the USA. China has raised import taxes to 20% for all tissue products imported from the USA except for the category 48.18.90 (hospital and diverse tissues), whose rate is 5%. However, this is of little consequence as US tissue exports to China were not more than about 9,000 tonnes in 2018.

“WITH A 25% TARIFF CHINESE TISSUE CANNOT BE COMPETITIVE IN THE US MARKET”

The trade war between China and the USA escalated in September 2018 when the USA announced a 10% tariff on US$200 billion worth of Chinese goods imported to the USA, including all the main categories of tissue except for 48.18.90. This is a major issue as China is the second-largest source of tissue import after Canada as mentioned previously. In 2018, tissue imports from China were about 330,000 tonnes, which corresponds to the capacity of five large tissue machines (see Figure 6). Luckily, the 10% tariff has been partly offset by the weakening of the Chinese exchange rate.

However, tariffs on China were recently raised to 25% and may remain at this level if no new agreement in the trade war can be reached. This would certainly cut tissue imports from China, and alternative sources cannot fully replace the whole quantity. This is noteworthy because with a 25% tariff Chinese tissue cannot be competitive in the US market. Under these circumstance, it is likely that the main categories are to suffer; however, the "other tissue" category may grow further as there is no duty on that customs code (see Figure 7).

Figure 7US tissue imports from China by main category, 2010-2018

 

Changes in the retail sector

There are some important changes in the US retail sector, which mean new challenges for tissue product suppliers.

One of the most important recent developments is the entry of the German global discount supermarket chain Lidl into the US market in 2017. Lidl, which rhymes with needle, opened its headquarters in Arlington, Virginia along with about 70 outlets opening by mid-2019 and more coming, although the original target of 100 outlets within one year was not reached. The grocery retailer giant uses a strategy similar to their German counterpart Aldi, whereby they offer a limited assortment of products in their stores and offer customers a mixture of private label goods and a small number of branded Consumer Packaged Goods products that encourage customers to keep coming back for replenishment, a strategy that has worked very well for them in Europe.

However, things were a bit different in the US.

Upon their entrance into the crowded grocery retail market, competing retailers, including the two largest US chains, Walmart and Kroger, carefully watched Lidl’s activity and pricing strategy, and reacted by utilizing a strategy known as Strategic Entry Deterrence whereby they lower prices to match or beat the prices on products sold in Lidl stores. This bodes well to consumers who are benefitting from this competition, but retailer and supplier margins are under pressure. With Lidl’s main focus on their private labels, these are expected to gain market share.

On the other hand, online sales are growing and changing the traditional retail sector logistics and thinking, though interestingly some players, such as Amazon, have also entered the brick-and-mortar business.

Figure 8Label shares in North America: Canada vs USA

 

Estimated retailer label share developments have been different in the USA and Canada from 2006 to 2018: growing in the USA while declining in Canada. In the US, Walmart has paved the way for more retailer labels and other retailers have followed suit. On the contrary, in Canada, brand owners have supported the marketing of their brands with massive promotional activities and retailers have had limited interest in developing retailer brands recently (see Figure 8).

In terms of retailer label shares by product group, napkins recorded the highest share at 56% in 2018, while the dominance of leading brands in facial tissue seems to continue with relatively little movement toward retailer labels. This is due to the structure of this segment, specifically, the big players have less interest in napkins and are not pushing their brands in the same way as they are with other products. As of 2018, household towels have the second-highest retailer label share of 34% while in toilet paper retailer brands are finding themselves in a very tough competition with the leading market brands (see Figure 9). However, it is expected that retailer label share will grow gradually from about 30% in 2019 to more than 36% by 2027. Though, a lot depends on how many brand owners invest in promotional measures to defend their market shares.

 

Figure 9Retail Label share in total percentage

 

North American Outlook

The expected growth in US tissue consumption in the next decade will be the strongest with At-Home (AH) retailer labels, while At-Home branded volume growth will remain moderate. While the AfH growth will rise above average AH growth (see Error! Not a valid bookmark self-reference.). In the period between 2017-2027, it is expected that the AfH sector will account for 48-49% of the total market growth and its share will climb to 35% of total tissue consumption. Toweling products are expected to have more volume growth than toilet tissue. Toilet tissue outlook will be mostly driven by population growth while in toweling product penetration can still grow (see Figure 11). Napkins and facial tissue will also show some growth albeit clearly lower volumes.

Overall, almost 202 thousand tonnes of new capacity is expected in NA in the next few years, see examples of the projected major tissue capacity changes by type and location in North America for 2018-2021 see Table 1. Despite using a conservative decline in calculating net imports in this forecast, the outlook is surprisingly good despite the number of projects, but a lot depends on how much tariffs on imports from China change the net trade balance. A lot of new capacity coming on stream that will affect 2019-2020; utilization rate will slightly decrease beyond 2020 if no further closures occur (see Figure 12).

 

Figure 10US Market volume

Figure 11Expected tissue market growth by sector and market in NA

Table 1Major tissue capacity changes in NA (2018-2021)

2018
Georgia-Pacific, Augusta, GA, USA	-31,000	tpa
Sofidel America, Circleville, OH, USA (2 x NTT)	140,000	tpa
Kimberly-Clark, Fullerton, CA, USA	-60,000	tpa
First Quality Tissue, Anderson, SC, USA (TAD PM)	64,000	tpa
	113,000	tpa
2019
Soundview Paper, Elmwood Park, NJ, USA (closure after two fires)	-110,000	tpa
Clearwater Paper, Shelby, NC, USA (NTT PM)	64,000	tpa
Irving Consumer Products, Macon, GA, USA (TAD PM)	64,000	tpa
Cascades Tissue Group, Scarborough and Whitby, ON, Canada (mill closures)	-61,000	tpa
Soundview Paper, Elmwood Park, NJ, USA (restart of PM11)	60,000	tpa
Georgia-Pacific Corp., Crossett, AR, USA (closure of the oldest PM)	-30,000	tpa
Georgia-Pacific Corp., Palatka, FL, USA (TAD PM)	72,000	tpa
Sofidel America, Inola, OK, USA	60,000	tpa
	119,000	tpa
2020-2021
First Quality Tissue, Lock Haven, PA, USA	64,000	tpa
Sofidel America, Inola, OK, USA	60,000	tpa
Georgia-Pacific, Naheola, AL, USA (replacement)	8,000	tpa
Kruger Tissue, Brompton, Sherbrook, QC, Canada (TAD PM)	70,000	tpa
	202,000	tpa

Figure 12Net capacity change and tissue operating rate in North America

 

 

Latin American outlook

Figure 13Main Latin American tissue markets share in 2018

 

Brazil, Mexico, Argentina, Chile, and Colombia were the five largest markets in Latin America in 2018, accounting for 77% of total consumption in 2018 (see Figure 13). The Latin American tissue market showed fluctuating annual growth rates from year to year ranging from 1.2% growth rate in 2003 to a high of 10.3% in 2006, all in all, averaging at a 4.4% growth rate over the span of 15 years (2003-2018). The lack of market growth stability can be blamed on economic turbulence and political instability which caused problems and disappointing growth in 2014-2016, with the Brazilian recession seen as the main culprit.

In the coming decade, Brazil is expected to recover strongly with an expected 890 thousand tonnes of volume growth and Mexico should also be back on the growth track with an expected 485 thousand tonnes. Colombia is expected to be the third growth market, followed closely by Peru and Chile. Though Venezuela remains uncertain due to the state of unrest the country has been witnessing (see Figure 14). Major capacity changes were expected for 2018-19 amounting to a total of 467,000 tonnes for both years with several new plants opening in Brazil, Bolivia, and Argentina (see Table 2). Further down the line, new capacities are expected to a total sum of 311,000 tonnes beyond 2020. Overall, Project delays and stronger demand are expected to help, but the current outlook does not suggest any major near-term improvement (see Figure 15).

Figure 14Expected volume growth of Latin American tissue demand by country, 2017-2027

 

Table 2Capacity changes in the Latin American tissue industry, 2018-2019

2018
Carta Fabril, Carta Goiás, Anápolis, GS, Brazil	70,000	tpa
Papeles Industriales (Essity), Lampa, Santiago, Chile	-30,000	tpa
Mili, Tres Barras, SC, Brazil	35,000	tpa
Papelera Nicaragua (Grupo Vual), Los Cardales, Pilar, Argentina	23,000	tpa
PAINSA – Papelera Internacional (Kruger), Rio Hondo, Zacapa, Guatemala	30,000	tpa
Cia Canoinhas de Papel, Canoinhas, SC, Brazil	30,000	tpa
Copelme, Santa Cruz de la Sierra, Bolivia	27,000	tpa
Papelera Vinto, Vinto Chica, Cochabamba, Bolivia	25,000	tpa
GCP – Grupo Corporativo Papelera, Tepetlaoxtoc, Mexico	34,000	tpa
	244,000	tpa
2019
Essity, unrevealed location, Mexico (TAD PM from Toscotec)	27,000	tpa
Blue Tissue SAPI, Apizaco, Mexico	30,000	tpa
Celulosa Campana, Lima, Buenos Aires, Argentina	30,000	tpa
Confidential, Bolivia	25,000	tpa
Papelera Nicaragua (Grupo Vual), Los Cardales, Pilar, Argentina	23,000	tpa
Papelera San Andrés de Giles, San Andrés de Giles, Argentina	34,000	tpa
Softys Argentina (CMPC), Zárate, Buenos Aires, Argentina	54,000	tpa
	223,000	tpa

 

Table 3Capacity changes in the Latin American tissue industry, 2020 and later

2020
Papelera Vinto, unrevealed location, Ecuador	18,000	tpa
Convertipap, Atlantagatepec, Tlaxcala, Mexico	33,000	tpa
Confidential, Colombia (?)	33,000	tpa
Papel San Francisco, Mexicali, Mexico	30,000	tpa
Kimberly-Clark do Brasil, Mogi das Cruzes, Brazil	60,000	tpa
	174,000	tpa
Potential projects
Anin Group, Tres Lagoas, Mato Grosso do Sul, Brazil	30,000	tpa
Santapel – Santa Catarina Papel, Tangará, Santa Catarina, Brazil	23,000	tpa
Caribbean Paper Producers, Kingston area, Jamaica	54,000	tpa
BAP Industries, unrevealed location, Nicaragua	30,000	tpa
	137,000	tpa

 

Figure 15Capacity utilization in change and tissue capacity Latin America

 

Global outlook

Tissue consumption has been benefitting from improving global hygienic standards, but trade wars and other uncertainties about future economic growth shadows the outlook (see Figure 16). Despite Chinese investments exploding, closures and project delays are still expected; and even though there is a real investment peak with a lot of capacity being built, a wave of capacity closures is occurring in the industry—as much as 1.3 million tonnes in 2017 and more than 700,000 tonnes in 2018. Nevertheless, more than 90% of Chinese tissue is currently made on modern machines, so closures will likely decline, thus net capacity expectation is positive with 1.4 million tonnes projected in 2019 and about 900 thousand in 2020 (see Figure 17).

Figure 16Volume growth in the global tissue market

 

Figure 17World tissue capacity change

 

On a global scale, announced tissue capacity expansion exceeds organic market growth. In some years, such as 2019, the amount of new capacity coming on stream is double the consumption growth (see Figure 18). The tissue sector is attracting a lot of investments. Major capacity closures could improve outlook, but only marginally (see Figure 19).

Figure 18World tissue capacity change based on committed projects

 

Figure 19Net capcaity change in the global tissue industry

 

Concluding remarks