Paper360 - March/April 2015 - (Page 61)
the bottom line | CONSOLIDATION WATCH
Conventional wisdom says that the pulp and paper industry is consolidating, which is necessary to its
long-term health. In this and future issues of Paper360°, this column, provided by Fisher International, will
analyze consolidation within different grades of pulp and paper.
To better understand the current state of global pulp and paper industry
consolidation, it is necessary to break the business into regions and grades beginning
with the largest region-grade segment, packaging in Asia Pacific which, as shown in
Figure 1, is not consolidated. There are many players and the largest three control
less than 30 percent of market capacity.
Considering all pulp and paper grades in Asia Pacific, the region is not consolidated to any large degree because there is still organic growth opportunity as paper
use grows. Between new users and more export opportunities made possible by a
low cost position, sufficient capacity growth rates will moderate any M&A activity
for some time.
North America's pulp and paper industry is also dominated by packaging grade
production which, unlike Asia Pacific, is highly consolidated as the top three shareholders control over 30 percent of total production capacity. Typical of a mature consolidated industry, companies are looking for growth by focusing on core products,
shedding unprofitable segments, or perhaps spinning off more profitable segments
into markets that are less consolidated and where margins are easier to earn.
Europe does not exhibit conditions similar to North America as it has been in
the paper business much longer, yet it is less consolidated (the top three European
producers control only 20 percent, while small market share holders represent
43 percent of the total). Residual respect for political boundaries keeps the European
market dispersed. With implementation of the Euro and positioning of Europe as
one economic region, we expect to see M&A activity increase, especially as demand
shifts and Europe sees more pressure to balance supply.
The Herfindahl-Hirschman Index (Figure 2), is a measure of the size of firms in
relation to the industry and an indicator of the amount of competition among them.
When tracked over a period of time, it reflects the dynamics of a consolidating market.
For instance, in North America there has been considerable consolidation over the
last 10 years or so, specifically in the containerboard market (Figure 3).
North America may be reaching the limits of consolidation for containerboard, and
perhaps for other grades. Consolidation may happen but, as with the Verso-NewPage
merger, it will include the shedding of some businesses and the repositioning of
Europe, on the other hand, is expected to have more M&A activity, specifically in
packaging grades which have been resilient with a stable and increasing production
rate. Declining printing and writing grades will likely see more consolidation as
players reposition themselves to sustain profits. The continent's markets are mature
and have low concentration currently, so there is a lot of room for movement.
Asia will have consolidation in the foreseeable future, but not until the cost of
building new capacity to meet growing demand exceeds the cost of purchasing existing capacity. Demand will eventually plateau and market leaders will see the need to
consolidate in order to balance supply and support prices. Opportunities will exist
across the broad spectrum, but it is logical to assume that packaging and printing
and writing grades will be the first to see any significant M&A activity.
Latin America is already highly consolidated because monopoly regulations are less
stringent and the geography effectively presents market barriers. Market pulp, the
primary product of Brazil and Chile, may never see consolidation only because
the current producers are so large and highly specific to their wood baskets. Within
the various geographic regions, kraft market pulp production is fairly concentrated
with a few big players providing the majority of the capacity market share points.
Figure 1. Asia Pacific distribution of packaging grade
capacity. Source: FISHERSOLVE™, © 2015 FISHER
Figure 2. Herfindahl-Hirschman Index for North
American containerboard production capacity. Source:
FISHERSOLVE™, © 2015 FISHER INTERNATIONAL, INC.
Figure 3. North American containerboard capacity.
© 2015 FISHER INTERNATIONAL, INC.
This analysis was compiled by
Jon Kerr, Senior Consultant,
Fisher International, Inc., using
Fisher International's FisherSolve™, a data-driven business
intelligence tool that contains a paper industry specific
database that accurately describes the capacity of every
pulp and paper mill in the world making 50 tpd or more.
To learn more, please visit www.fisheri.com.
Paper360º MARCH/APRIL 2015
Table of Contents for the Digital Edition of Paper360 - March/April 2015
Over the Wire
TAPPI's Centennial: A Celebration 100 Years in the Making
Precision Alignment of Winders
Single-stream Waste Processing
iRoll at Irving
Fully Automated Continuous Digester
Twin Roll Press Upgrade
TAPPI Journal Summaries
Microfibrils to Transform Paper Furnish
New Energy Windfall
Power from Waste
Paper360 - March/April 2015