Tissue paper manufacturing markets are proving resilient and competitive. And while consumer needs are influencing the evolution of the entire industry, the economic events of recent years are changing the dynamics of its markets. As a result, a more local dimension to them is expected, as well as the growth of as-yet-unripened economies with Asia accounting for more than 60 percent of global tissue demand growth within the next decade.
The performance of paper industries is influenced by the general performance of the economy, particularly in the case of products that are consumer goods, and household and sanitary papers are an example of this.
Tissue production, like others in the sector, has been affected by the steep increases in energy prices and production costs, including pulp, experienced recently. Increases that could not be reflected in the final cost of products and which ended up, therefore, having a greater impact on companies in the sector. To this must be added the need to respond to ever-increasing sustainability, with continually higher requirements demanded by both the end market and regulatory authorities. Technological innovations and cost-saving opportunities thus become crucial, and tissue manufacturers end up focusing their efforts and demands on elements such as the efficiency and performance of the production cycle and the entire supply chain, upstream and downstream.
European tissue production
Analyzing trends over the past decades, from the beginning of the new millennium to a forecast to 2030, the data presented at Miac 2022 by Hampus Mörner, senior consultant at Afry, speak of a sector that, even in recent years, has been able to demonstrate its resilience. Although it has suffered from inflationary pressures that have affected its demand, and despite the inevitable setbacks during the most difficult times of the financial crisis and the pandemic period, it has proven to be a sector capable of adapting to even the most adverse situations and today, the manager says, has excellent prospects especially compared to other sectors. On the supply side, the sector also demonstrates its resilience. At the European level, especially over the past decades, it has developed new capacity-only some of which was expected-with the long-term trend settling at +1.5 percent. The Brexit marked another defining moment in the evolution of the European industry. The U.K.’s exit from the Union led to a growth in the capacity of the European sector, and as the U.K. is one of the main net importers of tissue in Europe, with also a rather high per capita consumption compared to the European average, the performance of the European producing countries was on average very positive.
Demand, therefore, has continued to increase, yet the European market is rather fragmented with low concentration.
The costs of the tissue industry and their impact on its performance are well known. In the dock are pulp and energy.
As for the raw material, Mörner analyzes data for the period from 2018 to 2022. An eventful period, he says, with pulp prices rising around 2020 and since then continuing to rise especially in Europe, significantly since the end of 2021. And as much as there has been downward pressure and signs of price correction in the second half of 2022, it is interesting to note that the rise has been driven in particular by a lack of supply.
On energy, the situation is well known. The extraordinary price increase that began in 2021 has turned into a devastating situation, with a triple-digit increase in the second quarter of 2022 compared to the same period in 2021.
Analyzing what has happened in recent years and comparing 2020, 2021, and 2022 tissue sector cost data, Mörner shows how the weight of pulp certainly has been a substantial part of this increase, but it is also interesting to note how energy-both thermal and electrical-is the factor that most drives the surge in the expense items of companies in the sector a bit across Europe.
Italy is among the countries most affected by this increase: according to Afry’s data, in the second quarter of 2022 gas purchase prices (euros/GJ) rose by 233 percent compared to 2021, while those of purchased electricity (euros/MWh) increased by 55 percent, less than in other countries analyzed – France, Germany, Spain and the United Kingdom – but exclusively because Italian prices started from much higher levels already in 2020 and 2021.
The cost trend is therefore similar across the continent however, whether it is energy, pulp, transportation, supply chain and certainty of supply, the remittance on local industries is different depending on the country.
So what, on balance, is the resilience and resilience of the tissue industry to absorb these costs? If we look at the data in country terms and analyze the trends in imports and exports, we see two opposing positions, of the United Kingdom and Italy. Data on 2021 while they see some balance between imports and exports in other European countries, they place Britain among the net importers of tissue paper, especially jumbo reels, and Italy among the net exporters, both of parent reels and finished products. Influencing the ratio of imports to exports has been the extreme increase in transportation costs experienced during the very period of post-lockdown trade recovery.
Tissue markets are proving resilient, however, even in the most difficult situations. But the feature that best identifies the industry now is its increasing competitiveness, including on prices-from pulp to transportation.
The market outlook, globally, tells us not only that competition is and will be very fierce, but that future growth will be primarily in the hands of emerging markets. The data speak of an average increase in demand of 6 percent within the next decades that will be due, first and foremost, to China (+4 percent) and other Asian countries (+2 percent). Asia alone will account for more than 60 percent of global tissue demand growth by 2030, according to Afry.
The Consumer (CT) category accounts for 75 percent of global markets and affects mainly mature markets; the remaining 25 percent is occupied by the AfH (away from home) category, which is more prevalent in North America and Europe, respectively. Also at the global level, the main product types are toilet paper-both in the consumer (62% of the total) and AfH (39% of the total)-and towels-in the CT (15%) and AfH (18%) categories; but there are differences from region to region, particularly related to cultural and consumption habits, for example, in Asia and the Middle East there is a prevalence in the use of facial tissue. And again, while tissue products such as toilet paper are almost entirely preferred in rolls, folded towels, even in the Consumer segment, constitute an increasing share, especially in the wake of the Covid-19 pandemic.
Afry’s analysis, moreover, indicates how the tissue market in the coming years may take on a more local dimension, import and export dynamics may reshape, and some markets may even become self-sufficient.
In light of all the ongoing and plausible changes, it therefore becomes imperative to find innovative solutions for many products to achieve greater cost optimization. There is also a need for more collaboration in the supply chain, for a common approach that is end-to-end, that is, from one end of the chain to the other.
Competitiveness must then also go through financial management; there is a need to optimize to remain competitive and find innovative solutions for the future.
Transformation: the weight of quality
Technological innovation in the industry means innovation in its systems. The industry that produces machinery for papermakers has made parameters such as digitization, automation and remote control its development focus. Certainly, Mörner explains, the needs of a specific market determine the requirements of tissue machines and converting lines and the evolution of their technology, but the goals of supply chain efficiency, speed, production optimization and scalability remain the same.
Determinant is the quality of the product demanded by the target market; we can divide the global demand into various quality segments: Economy, Standard, Premium. Data collected by Afry testify that there is a trend toward premium tissue and structured tissue (TAD) in mature markets, such as North America and Western Europe, where high product quality is a very important feature, while Economy and Standard segments hold a larger share in other markets. Asia turns out to be very similar to the European market, with premium products finding a place mainly in mature economies such as Japan and Korea, but there is also an increase in their uptake in China, albeit starting from lower levels.
The installation of tissue machines is another indicator of future and possible developments in the industry, as the technology of these machines affects the requirements of converting lines. To study this, Afry analyzed preferences for tissue machine installation between 2015 and 2021. Comparing again the three most important markets, it shows that in the Americas and Europe, a high preference prevails for large-scale, high-speed machines, 1,800 m/min, and interoperable with high-efficiency converting machinery; while China presents a mix of systems, from large-scale, high-speed machines to machines with lower speeds.
Installed capacity to date, on the other hand, reveals a prevalence of structured tissue production (TAD) in America, motivated in part by the more affordable price of energy, while as far as Europe and China are concerned, preference prevails for conventional tissue, with a good share, however, of structured in Europe as well, although not at the level of the North American continent.
Market trends are another factor influencing the evolution of paper converting machines. Areas of interest and development are automation, because of the need for automated systems capable of ensuring speed, flexibility, and waste reduction; digitization, which enables better data sharing among all components of the production chain; and remote control in particular to ensure remote maintenance systems and rapid after-sales service.
Finally, also in view of the end market’s focus on this aspect, sustainability is now crucial. The machinery industry is investigating solutions to reduce its carbon footprint, to reduce the use of energy, raw materials and materials in general, from glues to packaging.