Outlook for the Western European Tissue Market Recent years show some variation but on average, slow growth in consumption

As said, the recession was long-lasting and it took five years before tissue consumption recorded a more positive consumption growth of as much as 2.9% in 2015. This was mainly due to the economic recovery in Southern Europe, which substantially contributed to the Western European average. But it should be noted that most of this growth was only a return toward the 2008 levels rather than anything else, at least in Southern Europe. And in 2016 the Western European tissue market showed disappointing growth of only 0.7%, the same as in 2014, our expectations were at a substantially higher level (RISI 1 chart). The full statistics for 2017 are not yet available at the time of writing, but early indications are that the year was not much better than the previous year. Some countries, including also larger markets, such as France, Spain and Germany, will likely show flat if not negative developments in tissue consumption when the final statistics for last year will become available (RISI 2 chart). We are not very optimistic regarding the future growth in tissue consumption in Western Europe. There are relatively weak driving forces, including marginal population growth (0.2 – 0.3% per year on average, in a number of countries declining population), maturing product penetration levels, and fewer positive effects from quality improvements as the trend to increase the number of plies in products (toilet paper, kitchen towels) is weakening. In addition, product light weighting to save fiber has negatively influenced the volume growth. Our long-term forecast predicts conservative growth of about 1.5% per year for tissue consumption in Western Europe on average. In Southern Europe, demand growth is expected to be slightly above the Western European average, as per capita consumption levels are still behind Northern or Central European levels. But as a whole, the whole region will see only rather moderate growth.

RISI 1 –
Annual Growth of the Western European Tissue Market Since 2001

With high share of retailer labels in most countries, the market is not very creative and product innovations have much less weaker effect than in the US market. For example, we do not expect more than 1.0% per year growth in Germany, the largest Western European tissue market.

Tissue suppliers do not really have the business in their hands, retailer label buyers largely dictate product specifications and so the business is much less dynamic than in countries with clearly above-average market shares of branded tissue products.

In Western Europe, Italy and the UK are the main exceptions with higher shares branded products and for this reason, we also expect that these countries will benefit from innovativeness and new product launches, leading to higher tissue growth than in countries with high retailer label share. In the AfH sector, European tissue suppliers are less innovative than the US suppliers, and also the popularity and aggressive marketing of hot-air dryers threaten the growth in the janitorial segment.

RISI 2 –
Development of Tissue Consumption in Western Europe, 1996-2016

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No major changes in supplier positions in recent years

There have been no revolutionary changes in tissue supplier positions in Western Europe in recent years. Essity continues to be by far the largest Western European tissue supplier, although its capacity share has declined below 30% (29.4%) as a result of the company’s recent restructuring measures, including several capacity closures. The Sofidel Group is the second-largest supplier, but with a substantially lower capacity share of 12.3%. Through recent acquisitions and some organic growth, WEPA has passed Kimberly-Clark and Metsä Tissue and now ranks third with a capacity share of just above 10%. K-C has sold and/or closed a few mills recently but still occupies the fourth position; it is not clear what K-C’s future vision for Europe is. Metsä Tissue has not made any major expansion, only some small debottlenecking work, for a while in Western Europe and has fallen down to fifth in the capacity rankings over the past few years (RISI 3 chart).

Industrie Cartarie Tronchetti (ICT) now ranks sixth. The Lucart Group improved its ranking through the acquisition of Novatissue in France and G-P’s Italian assets, and although it sold its French mill to WEPA, Lucart remains in seventh position. The most recent acqusition of Lucart, the ex-CEL Aranguren mill, is not included in its capacity as the deal was completed end-January 2018 and PMs were idle at the end of 2017. The combined capacity of the tissue mills owned by the Carrara family (led by Massimo Carrara) entitles Cartiere Carrara (formerly we used the name MC Tissue Group) to a rank of eighth, and the company has additional expansion in its long-term plans. Renova of Portugal and Fripa of Germany complete the top 10 ranking with rather similar capacities, after Renova started up its newest PM in early 2017. All the top 10 companies have a capacity of more than 100,000 tonnes per year.

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Capacity changes

In 2016, no single new tissue PM was started up but there were several smaller PM rebuilds and one mill restart by the Eurovast Group – the Fabbriche di Vallico mill had again new owner and came back on stream. But SCA/Essity continued its rationalization program by closing the Mediona mill in Spain and one PM at its Hondouville mill in France, and these closures more than counterbalanced capacity increases from rebuilds and restarts.

Net capacity change was negative by 13,000 tonnes in 2016.

In 2017, two new PMs were started up in Portugal (by Renova and Paper Prime/Trevipapel) and one in Italy (by Ariete). But again, closures played a major role for compensating the capacity increase through new expansions.

SCA/Essity closed one additional PM at its Stubbins mill in the UK, where only the largest PM is running any more. The CEL Group of Spain was hit by difficulties with its recently acquired and restarted PMs in Spain and had to idle two mills around the mid-year. As a result, there was practically no capacity change (1,000 tonnes) in 2017. It can be concluded that the two past years were helping the Western European demand-supply balance due to the closures. But the current project announcements for 2018 suggest that the balanced situation in the marketplace will change, and this in the Iberian Peninsula in particular. Gomá-Camps of Spain has ordered a new single-width PM from Voith with start-up scheduled for the first quarter. The Navigator Company of Portugal is on the way to integrate the Cacia pulp mill with tissue production, with Voith as the supplier for its large-sized PM (70,000 tonnes per year). Both ICT Iberica and Sofidel Spain have ordered large PMs from Valmet, each adding 70,000 tonnes to the regional capacity.

The curiosity is that all these three large PMs are expected to come online almost simultaneously, in the third quarter of 2018. In addition, the Lucart Group acquired the Aranguren mill from the CEL Group and restarting it in the first quarter. Capacity additions in the Iberian Peninsula will mean an increase of more than one-quarter to the regional (Spain plus Portugal) tissue capacity, tightening competition there in an enormous way. In addition, Essity has scheduled the restart of an idle TAD PM at its Skelmersdale mill site for the first quarter, and there are also tow additional project in Italy. The Eurovast group will replace one older PM at its Botticino mill in Lucca with a new Toscotec PM, and Lucart will add another tissue PM to replace an old MG paper PM at its Porcari mill, the supplier of the new PM is also Toscotec, and tissue production on its larger MG paper PM is expected to be moved on the new tissue PM. For 2019, we have only one committed project on our expansion list, and that by a small, in colored napkin stock specialized player Klippans Bruk (formerly known as Svenska Pappersbruket). This project was a small surprise as it will mean a 300% increase to the mill’s current production but existing infrastructure (from old and closed fine paper production) will facilitate the realization and also help a lot in the investment cost. Beyond these, there are several potential projects, although we have chosen to add only a few of them to our list. We have removed the project of Norske Skog at its graphic paper mill in Austria because of the insolvency of the holding company; however, if new owners will emerge, this project could be refreshened (RISI 4 chart).

RISI 4 –
Capacity Changes in the Western European Tissue Industry since 2016

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Demand/Supply outlook

It is assumed that Western Europe will remain a marginal net importer of tissue in the coming years. Western Europe was a small net exporter in 2012-2014, but moved to a net importer thereafter, with one of the main reasons being the collapse in exports to Russia due to new capacity started up there and in that time the radically weakened exchange rate of the Russian ruble.

Our assumptions are so close to a balanced situation that the trade balance with other regions will remain unimportant in the next few years. Imports from the MENA region and Asia are likely to grow, but so will exports to Eastern Europe and Africa. The expansion in the Iberian Peninsula will create the need to export tissue to other European countries but also outside the region, Africa in particular but some volumes may also go to Latin American non-producer countries (linguistic similarity helping).

The recession-caused decline in tissue consumption and increase in net imports resulted in a major drop in the average tissue capacity utilization rate from the normal 90+% to less than 86% in 2009. The average operating rate started to recover in 2010, but only gradually, and the pre-recession level was not reached until 2013. Capacity closures greatly contributed to the recovery in utilization rate in 2012-2013. But in 2014 the average industry operating rate declined, as demand growth was weak and some new capacity came on stream. A pick-up in consumption in Southern Europe helped halt the slide in the utilization rate in 2015, despite the fact that the effective capacity increase was up from the previous year. In 2016 capacity utilization declined slightly, the main reason being substantial increase in net imports to almost 100,000 tonnes – Turkish exports to the UK and Greece (because of closures there) were the main contributor to this change.

The figures for 2017 are not yet ready but there are indications that net imports continued to grow. However, some mill closures and temporary mill idling activities helped the net capacity increase remain moderate, and capacity utilization improved slightly, based on currently available data.

The outlook for 2018 is rather despite new capacities starting up in the second half of the year, and our forecast is that net imports will begin to decline toward the year and probably remain slightly below those of 2017. The average capacity utilization is expected to remain at around the same level as in 2017. The main effect of the 2018-2019 investment peak will be in 2019, with net effective capacity change forecast to be 200,000 tonnes, more than 1.5 times the expected organic market growth. The average industry operating rate is expected to fall below 89%, but a lot depends on how much net imports will decline – we forecast only a small decline as a whole. Beyond 2019, everything will depend on how many new projects emerge; there are several plans in the works by various suppliers (RISI 5 chart).

RISI 5 –
Net Capacity Change* and Capacity Utilization in the Western European (Tissue Industry, 2005-2021)