FR AFRY Management Consulting
short tonnes of production capacity on three mill sites in Oklahoma, Ohio, and Florida. The mills in Inola, OK, and Circleville, OH, have both been built since 2018 and each houses two tissue machines with integrated converting operations. Circleville investment cost estimates have ranged around $300m, while the more recent Inola project has been reported to have a $360m budget, which is consistent with the observed growing capex requirement trend with tissue mill investments..
FIGURE 1: TISSUE CAPACITY EXPANSIONS & CLOSURES 2019-2023
The crucial role of fibre costs for the tissue sector To change gears from investment costs to operating costs, fibre costs represent 60-80% of market pulp and about half of recovered fibre-based tissue product manufacturing costs, and hence are a significant driver for tissue companies’ performance. 2019 brought relief to tissue
mixed paper in fibre furnish. In a tissue manufacturing context, mixed fibre use could work especially in the brown AfH product context and could be possible with relatively low capex upgrades and
plans is the apparent project cost inflation, which has added, order of magnitude, 20% on original project cost estimates. Low likelihood of mega mergers. The tissue sector top suppliers chart 2021
companies’ cost environment. The record high pulp prices in 2018 turned into decline in 2019, falling by close to 30% from peak pulp prices only a year earlier. The developments in recovered fibre markets and recovered fibre prices have been even more dramatic than in market pulp over the past year. Sorted Office Paper (SOP) price fell close to 60%. As a result, tissue companies were able to show improving EBITDA performance throughout 2019. Over the past years we have observed tissue companies adjusting their fibre furnish slowly away from recovered fibre. Based on AFRY’s estimates, in mature markets recovered fibre has lost 5% share of tissue furnish over the past decade. The change has been driven both by growing product quality needs, but also due to concerns over continued high quality recovered fibre
modifications in tissue mill recovered fibre screener and washer systems. US retailers have been expanding their private label tissue product portfolios with recycled fiber content product line additions. Both Target and Albertsons launched 100% recycled fibre content private label tissue products in 2019, following Walmart’s footsteps from a year earlier. Although still a small segment of the market, most of the leading US supermarkets do offer recycled fibre content private label products. Interestingly, there appears to be only a few main sources for recycled fibre based private label tissue products in North America – Cascades, Georgia-Pacific, Kruger and Soundview. Aligned with the search of more fibre raw material options, the map of tissue capacity changes [FIGURE 1] includes one interesting
edition is likely to look very similar to the 2020 edition in this article. The sector will likely continue to favour capacity build up and asset renewal over radical M&A. We are most likely to see M&A activity relating to vertical integration. Opportunities with recovered fibre. The Chinese exit from the global recovered fibre market has created a domestic recovered fibre surplus, which offers opportunities for tissue mills to innovate with low cost and positive environmental image raw material. Although it is yet to be seen to what extent the US consumer market – where product quality, softness and bulk is king - is ready for recovered or alternative fibre content tissue products.
availability driven by declining consumption of office papers and printed media overall. However, China’s implementation of the National Sword programme to limit imports of recycled materials to China, including recovered fibre, has brought a dramatic change to recovered fibre availability and prices in North America. If SOP prices declined by close to 60% in 2019, the value of Mixed Paper collected typically from residential recycling bins plummeted to worthless after China stopped buying it in early 2018. Over the past decade, Mixed Paper prices typically fluctuated between $50 and $100/tonne, but currently Mixed Paper is offered to domestic paper mills practically for free. Hence, both the packaging and tissue mills have shown interest in increasing use of
tissue mill plan on the Pacific Northwest in Dallas, OR. Mint Valley Paper might have a unique approach to tissue product fibre raw material in the North American context. The company has disclosed interest in exploring alternative fibre sources for the mill, potentially using wheat straw pulp from the close-by Columbia Pulp wheat straw pulp mill in Eastern Washington.
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Tissue World Magazine | Focus Report 2020
Future directions Capacity growth risk. 2020 will see three times the volume of new capacity entering the market than in 2019. While the demand growth rate is not expected to triple, the tissue sector might face some short term over capacity, unless closures of older high cost capacity relieve the supply pressures. Another risk factor for the capacity growth
IF SOP PRICES DECLINED BY CLOSE TO 60% IN 2019, THE VALUE OF MIXED PAPER COLLECTED TYPICALLY FROM RESIDENTIAL RECYCLING BINS PLUMMETED TO WORTHLESS AFTER CHINA STOPPED BUYING IT IN EARLY 2018. OVER THE PAST DECADE, MIXED PAPER PRICES TYPICALLY FLUCTUATED BETWEEN $50 AND $100/ TONNE, BUT CURRENTLY MIXED PAPER IS OFFERED TO DOMESTIC PAPER MILLS PRACTICALLY FOR FREE.
