In recent years, the market for hygiene paper products has experienced significant fluctuations, influenced by the pandemic, inflation, and rising energy and raw material costs. After a peak in demand in 2020, sales declined, but 2024 saw a new upturn. In the coming months, the tissue industry will face tough challenges related to competitiveness, sustainability, and extra-European imports
The past few years have been complex from many perspectives. From a purely economic standpoint, there have been extraordinary phenomena that have contributed to the current situation. To forecast the upcoming trends, it is necessary to analyze what has happened in recent years in order to understand the dynamics. This is exactly what Christoph Euringer, senior principal at AFRY Management Consulting, did when he spoke at Miac 2024 on “Tissue Sector Trends – Opportunities and Challenges for Value Creation,” providing an overview of the economic situation in Europe.
It is important to note, however, that the economic forecasts reported in this article are based on data preceding the election of Donald Trump as President of the United States. Consequently, they do not account for the economic and trade decisions the new president is adopting and will adopt, particularly regarding tariffs. These decisions could reshape the global economic balance in the coming months, making it impossible to accurately predict their effects today.
Economic Overview
The market faced its greatest difficulties during the pandemic. The turbulence of that period caused massive fluctuations in economic growth and therefore in GDP performance from 2020 to 2023. “We have not yet overcome the problems created during that time, although forecasts are slightly positive,” says Euringer. Another economic indicator is selling prices, which are affected by inflation; in 2024, these prices have decreased.
Market sentiment is also shifting toward more positive forecasts, indicating we are in a phase of growth, albeit still in its early stages.
Looking at individual sectors, it’s evident that consumer and retail (i.e., the market) still face several challenges; on the other hand, the industrial sector shows greater potential for improvement, according to Euringer.
Demand Trends
Some consumer goods, such as tissue paper and other household and hygiene products, act as a thermometer of consumer market trends. Analyzing their performance can help anticipate broader market movements, as they offer an early, predictive view of economic developments. The general outlook for markets, especially in recent years, has been positive.
“In 2020, there was a sharp rise in sales, particularly of household-use tissue products.” Demand for these products was strongly driven by the needs generated by the Covid-19 pandemic and the consumer stockpiling trend.
“After peaking, sales began to decline in 2021, continuing into 2022. In 2023, there was a notable drop in production volumes” (Figure 1).
The prolonged volatility experienced by the tissue market was certainly an unprecedented phenomenon that led to an equally unusual economic trend in the sector.
Raw Material Prices
Another very interesting factor to analyze, says Euringer, is price trends.
“If we look at 2022, when electricity and gas costs peaked, it becomes clear how this period of sharp price increases continued for a long time, inevitably impacting consumption through 2023.”
In particular, energy costs – especially gas – rose dramatically in 2022, creating a difficult period for companies. Even though the situation began to improve at the start of 2023 and prices began to fall, many uncertainties remained.
A similar trend, Euringer explains, was seen in raw materials. From low pandemic-period costs starting in 2020, they sharply increased in 2021 as economic activity and markets reopened after lockdowns. Since then, they have experienced the same volatility as energy costs, exacerbated by the expansion of the Chinese market, which absorbs a large share of global pulp demand.
This erratic trend has led to an inevitable loss of profitability for companies. “In 2024, we began to see the first commodity price reductions, which go hand in hand with lower wholesale prices.”
All these factors, exceptional in nature, show how the tissue industry has been marked by major fluctuations in recent years – a condition that has unavoidably impacted profitability.
Nonetheless, AFRY’s director points out that economic data and sector insights indicate that the tissue industry has faced this unstable context with determination and maintained balance, even showing some improvement over the past year.
There are no clear signs of an imminent crisis in the sector, Euringer states; in fact, the past year has seen an increase in margins.
Forecasts and new capacity
It remains to be seen what to expect from the future in a market so exposed to fluctuations. The tissue sector’s capacity is around 7.5 million tonnes, Euringer continues. “In 2024, tissue production increased, and demand in the first half of the year grew by over 5% year-on-year.” In Europe, the countries with the best production performance were Italy and Spain, while Central Europe saw slightly slower development (Figure 2). Fluctuations were significant. Euringer recalls the 2008–2009 financial crisis, the post-pandemic rebound in 2021, and weak consumer purchasing of tissue products in 2023 due to product inflation over the previous two years. However, the 2024 economic data began to show early signs of improvement. “They not only suggest we are recovering losses, but also offer a positive outlook with demand likely to exceed 2022 levels” – a good sign (Figure 3). But what will happen in the coming months? Consumption and production forecasts based on data updated to last October are fairly modest, according to AFRY: additional demand is expected to range between 600,000 and 700,000 tonnes through 2030, to be met by new sector capacity. However – as previously mentioned – these forecasts were made before the start of Trump’s new presidency and therefore before his trade tariff decisions, which will have global trade repercussions.
Already in 2024, there have been some changes in production capacity, with increases and decreases due to plant closures or replacements.
“Some believe it might be a good idea to add new paper production plants, and likely some have already planned to expand production. We know for certain that an additional 200,000–300,000 tonnes of new capacity are already planned. It is estimated that between 2025 and 2030, the sector could increase production by around 400,000 tonnes, with potential growth up to 700,000 tonnes. However, it remains to be seen how many of these projects will actually materialize.” As of last October, the balance between supply and demand had remained stable, but an excess of new projects could still destabilize markets.
Imports into Europe
Faced with a demand that is not expected to grow significantly in the coming months, tissue mills must address another sensitive issue, explains the AFRY director: European paper producers are not the only ones able to supply the European market. And the extra-European trade data is clear. “Export figures have declined, while imports have increased, and in the first half of 2024, about 200,000 tonnes of net imports were recorded in Europe.” These volumes come from specific production markets: “primarily Turkey, but also North Africa, China, and Indonesia” (Figure 4). The rising cost impact is certainly weighing on the Italian and European sectors, but given current market trends, it is essential to rethink and boost the competitiveness of the paper industry. “The sector must work on its competitiveness: while energy efficiency is certainly important to manage the impact of high energy costs, operational efficiency and sustainability are equally important.”
Aiming for carbon neutrality
Summarizing the economic data from recent months, Euringer describes a sector with good prospects. “The tissue industry has shown it can recover very well from the crisis period, especially compared to packaging and graphic paper sectors. And, in terms of the market, demand appears active, though the outlook remains modest.” However, thoughtful decisions must be made for the future of the sector, and the AFRY director suggests some, including avoiding overcapacity in a market that could otherwise face a negative backlash in supply-demand balance, and focusing on improving efficiency. “The big question is how the tissue industry will ensure it remains competitive in a highly competitive sector. Certainly,” he concludes, “decarbonizing the European energy system and promoting sustainability are two key aspects that must be protected. Once decarbonized and more sustainable production is achieved in Europe – at competitive costs – it will become more difficult for other regions to export to the continent.”