Paper360 - November/December 2015 - (Page 34)

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. european uncoated Freesheet The European Uncoated freesheet (UFS) market lacks leadership. While there are large, respectable companies in Europe producing UFS with fine individual leadership, the market itself has no company whose position gives it the potential to lead. As a consequence, the market has healthy competition dynamics. However, given that demand for UFS papers is in decline in Europe, market leadership has become a more important (and conspicuously absent) feature. The market is a long way from being able to efficiently address changing supply-demand dynamics. Figure 1. Market share of European UFS capacity shows that the top three players account for only 38% of capacity. There is a lot of room for consolidation. SOURCE: FisherSolve™ © 2015 Fisher International, Inc. Figure 2. Capacity reductions in Europe have tracked declines in UFS production there. SOURCE: FisherSolve™ © 2015 Fisher International, Inc. Figure 3. Fisher's Viability Index™ analysis identifies fourth quartile machines that are old, have low production rates, and are high cost. These are the machines that are most likely to be taken out of UFS production as the market continues to shrink. SOURCE: FisherSolve™ © 2015 Fisher International, Inc. 34 Paper360º NOVEMBER/DECEMBER 2015 Figure 1 shows the segment's state of concentration today. The top three producers share only 38 percent of European capacity. There are 75 companies still producing UFS in 95 mills on 143 machines that are located in 19 countries. Machine capacities range from 467,000 MTPY to 775 MTPY and technical ages form 88.6 years to 6.5 years. There is a wide range of machines and producers, a clear sign of a relatively unconsolidated segment. The UFS market is split among office cutsize sheets, offset printing paper and converting grades (envelopes, forms bond, books, etc.). With the growth of electronic publishing, demand for UFS has been in decline for about the last 10 years. UFS capacity dropped in Europe from 11.7 million MTPY in 2007, to 10.3 million MTPY projected for 2015 (Figure 2). Market contraction is painful to deal with since it requires someone to take out capacity, either by switching grades or shutting down machines. Europe's problem is that no single player has the necessary market share to remove enough capacity to make a difference over the long term and yet have enough remaining capacity to prosper. Smaller companies simply cannot shut down their few, or only, assets. Larger companies with multiple machines may have more flexibility, but it still must be economical to close a machine for strategic reasons. That leaves the more painful process of bankruptcy and forced closures as a likely remedy for the segment's supply-demand balance issues, along with repositioning machines into other grades. Figure 3 shows the many at-risk machines in the segment. Depending on which machines fail and/or are repositioned, the segment will either consolidate or fragment: if smaller participants exit the market, the segment will tend to consolidate; if larger producers remove capacity, the result will be even greater fragmentation. One bright spot, which largely depends on the relative strength of the Euro, is that some capacity is now kept online to meet demand for exports. 2014 CEPI Trade Statistics mark UFS exports at 2.3 million tonnes of the 9.1 million tonnes produced. While not entirely exchange-rate driven, so long as the Euro remains weak, exports may continue to relieve the pressure on European closures. If and when the Euro regains strength, there may be a more sudden reckoning, resulting in capacity closures. There would have to be significant asset transfers for any company to acquire 30 percent share or more on their own. Such consolidation is not likely given the cost of the acquisition and the declining nature of the market, especially if the purpose of buying capacity includes a plan to shut part of it down. A more likely chain of events will be the gradual decline in capacity similar to what happened in newsprint: as demand for the grade decayed, machines were converted or shut down in order to balance capacity against demand, with predominantly small, high cost, old machines being the first ones to go. 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

Table of Contents for the Digital Edition of Paper360 - November/December 2015

Over the Wire
Proud to be a Papermaker
Solenis’ Total Mill Perspective Helps Mills Stay Competitive
Maintaining Knife Gate Valves
An Automated Solution to the Kappa Number Test by Titration
Higher Alloyed Composite Tubes Make Recovery Boilers Safer and More Efficient
TAPPI Journal Summaries
New Leadership Model Focuses on Caring, Compassion
Consolidation Watch
Association News
Online Exclusives
Index of Advertisers

Paper360 - November/December 2015