Grade Profile

Tissue: Industry outlook positive,
prices likely to increase in 1997

Tissue paper is used in sanitary products such as bath tissue, paper towels, facial tissue, and napkins, and is sold to consumer and commercial/industrial (C&I) customers. Also called the "at home" market, consumer tissue accounts for 63% of the entire tissue trade and is purchased at retail outlets. C&I tissue, also called the "away-from-home" market, represents 37% of total shipments and is sold wholesale to janitorial supply companies, hotels, offices, restaurants, factories, schools, and government.

Bath tissue represents about 41% of total volume, followed by paper towels (32%), napkins (14%), facial tissue (6%), and other tissue (7%). About 42% of all U.S. tissue is produced out of purchased waste-fiber, and 21% is produced from purchased virgin pulp. The remainder is produced at onsite, integrated pulp and paper mills.

In the roughly $4 billion U.S. commercial market, domestic tissue shipments accounted for about 2 million tons in 1995. The commercial market tends to grow slightly faster than the consumer market, where domestic shipments have grown from 2.7 million tons in 1984 to 3.4 million tons in 1995.

With among the highest profit margins and most stable growth rates in the paper industry, the $8-billion U.S. tissue business is intensely competitive. It also is undergoing massive consolidation, most notably in the $9.4 billion merger of two consumer products giants, Scott Paper Co. and Kimberly-Clark Corp. (K-C) in December 1995 which has resulted in a number of plants changing hands. Chesapeake Corp. and Canadian conglomerate Cascades Inc. also made major acquisitions during 1995.

Based upon producer prices, tissue prices were still averaging above the 1995 level, despite declining prices in 1996. For April 1996, prices for converted tissues were averaging 11% above the 1995 level. In the April-June 1996 period, premium consumer tissue producers decreased wholesale prices by 5 to 9%. The three biggest C&I producers announced price rises of between 3 and 10% in late 1996 and these are expected to stick. Commercial tissue prices rose aggressively in 1995-at a rate of 12 to 14%-and tend to mirror commercial prices.

Output/capacity. The U.S. tissue industry operated at an estimated 94.3% of capacity in 1995, producing 6.21 million tons, a 1.8% increase from the year before, according to the American Forest & Paper Association (AF&PA). Capacity increased 0.6% from 1994 to 1995 and expanded another 1.1% to 6.7 million tons in 1995.

In 1997, Kimberly-Clark Corp. and Procter & Gamble Co. will each start up one new U.S. tissue machine. In addition, K-C will start up a rebuilt line. Georgia-Pacific Corp. plans to complete a fifth tissue line at its Crossett, Ark., mill and P&G will start up another line at its Albany, Ga., plant in 1998. Fort Howard Corp. plans to start construction on a new tissue line for completion in 1999.

The Canadian tissue market is roughly one-tenth the size of the U.S. tissue market. In 1995, Canadian tissue producers operated at about 92% of capacity. Production in 1995 was up 3.5% from the previous year to 682,000 tons, according to the Canadian Pulp & Paper Assn. (CPPA). Capacity increased 0.4% in 1995 and was forecast to be flat in 1996.

Outlook. Little new capacity and rising operating rates make the outlook for tissue producers positive through 1997. While tissue prices are forecast to continue advancing in 1997, increases are likely to be smaller, and will be dependent on wastepaper and pulp costs. The merger mania that occurred in 1995 is not likely to be repeated any time soon due to anti-trust concerns. But existing large players will get bigger by taking market share away from smaller producers, and by going
global. Large tissue producers, operating in essentially a mature market, will use their cash flow to grow overseas, particularly in Latin America and the Pacific Rim.

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