Esko Uutela, Principal, Tissue
Jan. 14, 2013
There is a real investment boom going on in the Chinese tissue industry right now. The very strong consumption growth of 12.5% or nearly 600,000 tonnes in 2011 (and likely, very similar growth this year as well) has encouraged companies to undertake massive investment programs. The tissue sector has become so attractive that many companies that are not currently part of the tissue industry have already entered or are planning to enter the tissue business in China. These newcomers include various kinds of companies: pulp and paper companies wanting to diversify from their traditional business focus (packaging or graphic papers) into tissue; enterprises who already produce absorbent hygiene products and see tissue as an extension of their business; consumer product companies that assume that their brand and marketing skills would mean a trump card in the tissue sector; and companies from process or heavy industries (such as mining, for example).
All the leading Chinese tissue suppliers recently announced huge expansion programs. There seems to be a race to see who can grow fastest! The four largest companies -- the Hengan Group, APP China, Vinda Paper and C&S Paper -- have expanded rapidly and their investment pace has accelerated. The largest players seem to be making efforts to add capacity as quickly as possible, perhaps in an attempt to frighten competitors and force newcomers to reconsider their planned investments. The largest players will benefit from their established positions and the visibility of their main brands, their market and distribution experience, their high quality products and their modern equipment, which will help them keep manufacturing costs other than raw materials low.
The Hengan Group and APP China are the two rivals vying for the position of largest tissue supplier in China. In 2012 Hengan added six large imported tissue machines, building them in pairs at three different mills, while APP China has so far started up three large PMs at three mills with the fourth PM start-up delayed to early 2014. This means that Hengan also snapped up the leading position in terms of installed capacity; in the Chinese market, Hengan has been the leader in recent years as APP China is much more export-oriented than Hengan.
Hengan's next investment phase will include eight large tissue machines from two different suppliers and start-ups are scheduled for late 2013 onward. These machines will add nearly half a million tonnes of tissue capacity and increase Hengan's total tissue capacity from 800,000 tonnes at the end of 2012 to close to 1.3 million tonnes when the expansion plan has been completed, which we expect by mid-2015 provided no delays emerge.
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Esko Uutela, Principal, Tissue, is the author of RISI's Outlook for World Tissue Business Study, the World Tissue Business Monitor and the US Tissue Monthly Data. He works out of RISI's EU consulting office close to Munich, Germany, and can be reached at email@example.com.