Paper360 - May/June 2015 - (Page 40)

the bottom line | cOnSOlIDAtIOn WAtcH Conventional wisdom says that the pulp and paper industry is consolidating, which is necessary to its longterm health. In this and future issues of Paper360°, this column, provided by Fisher International, will analyze consolidation within different grades of pulp and paper. Asia-Pacific Tissue and Towel In developed economies, tissue and towel has historically grown at roughly the same rate as the population. However, in developing economies, the growth can be attributed to more people adopting the use of tissue and towel products as wealth grows. In fact, one of the very first "luxury" items to be brought into a developing economy is tissue and towel products. Over the past decade, there has been tremendous growth in tissue and towel production in the Asia Pacific region, adding more than 7 million tonnes since 2007 for a Compound Annual Growth Rate of a blistering 17.4 percent. With such a high growth rate, it is expected that there would be very little M&A activity. And, for the most part, that is quite true. Figure 1 indicates the aggregate capacity of each company with operating sites in the Asia Pacific region. With the world's population at 7.3 billion and a global tissue and towel production capacity of 35.5 million tonnes annually, average consumption is approximately 4.9 kg/ person/year. Asia Pacific produces 32 percent of the world's tissue and towel, yet has approximately 60 percent of the world's population, which means that the region has a consumption rate that is just under half of global averages. Considering the 4.4 billion population in the region and a market gap of 2.3 kg/person/year, there is room in the tissue and towel market for another 10 million tonnes of production, or roughly 1,000 more machines, before the region's consumption is in parity with world averages. With that much headroom in the market, it is more profitable for companies to build their own capacity than it would be to acquire existing capacity, so it is expected that M&A activity would be low, which it is. The question then is, how much new capacity will be built by the current market share leaders and how much by new companies springing up to meet the increased demand? With the large number of machines installed from 2005 forward (Figure 2), and the distribution of those machines over a multitude of companies (Figure 3), it is expected that the trend will continue. New companies will meet much of the growing demand for tissue and towel throughout Asia Pacific. Existing players, especially those who have already demonstrated a desire and ability to invest in tissue and towel, will also vie for increased share of the growing market. Taking a closer look at APP (the largest market share holder) and how they got to be the top producer in the region, it is apparent that the strategy has been to invest heavily in capacity in their existing sites, placing new machines in several given sites year after year (Figure 4). The same practice appears to be the case with Heng An and, to a lesser degree, Vinda. While some smaller acquisitions have occurred in the region, they have typically been confined to more mature micro-market segments (e.g., Japan) where domestic growth is slower; it is generally the case that future M&A activity will be minimal until the rapid pace of growth slows somewhat. In the meantime, we expect to see the larger market share holders continue to invest in building out their own mill sites by adding machines and doing significant upgrade projects as their machinery ages. 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 40 Paper360º MAY/JUNE 2015 FIGURE 1. Asia Pacific Tissue and Towel capacity has grown at over 17% since 2007, with very rapid growth over the past three years. Source: FisherSolve™© 2015 Fisher International, Inc. FIGURE 2. Since 2005, the region has added tremendous capacity. Note the large number of machines built by Guangxi Huamei (dark pink band) from 2010 to 2013. 97% of capacity is dedicated to consumer grade products. Source: FisherSolve™© 2015 Fisher International, Inc. FIGURE 3. APP, Heng An and Vinda account for 32% of the total Asia Pacific T&T market. Source: FisherSolve™© 2015 Fisher International, Inc. FIGURE 4. APP has added capacity to selected sites year after year, indicating a general expansion strategy that focuses on building out their existing sites. Source: FisherSolve™© 2015 Fisher International, Inc.

Table of Contents for the Digital Edition of Paper360 - May/June 2015

Over the Wire
Centennial Wrap-Up
An Interview with James Hannan
Hydraulic Accumulators
Special Capabilities at Lincoln Paper
TAPPI Journal Summaries
Dewatering Fibrous Sludge with Soy Protein
Consolidation Watch
Association News
Online Exclusives
Index of Advertisers

Paper360 - May/June 2015