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.
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 www.fisheri.com.
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
Index of Advertisers
Paper360 - November/December 2015