Pirkko Petäjä Principal, Pöyry Management Consulting, Finland

Transcription

1 OVERVIEW OF THE EU MARKET Can European Tissue Market Become Immune to Low Cost Competition? Pirkko Petäjä Principal, Pöyry Management Consulting, Finland Pirkko Petäjä, Principal within Pöyry Management Consulting is a graduate from the Helsinki University of Technology with a Master of Science in Pulp and Paper Engineering and an emba from the Helsinki School of Economics. Pirkko, based in Helsinki, Finland, is Pöyry s leading senior advisor in the tissue sector and has worked in a role of board-level advisor for many of the leading tissue companies. She has also been involved in a number of strategic acquisitions in the European tissue industry. Ms. Petäjä has experience as project manager for numerous asset and business evaluation, corporate restructuring, strategy and business development assignments in the tissue sector. She has over 20 years experience from management consulting work for the global pulp and paper industry with several years specific focus on the tissue and hygiene segment.

2 CAN EUROPEAN TISSUE MARKET BECOME IMMUNE TO LOW COST COMPETITION? TISSUE WORLD BARCELONA 17 MARCH PIRKKO PETÄJÄ PÖYRY MANAGEMENT CONSULTING

3 STORY LINE Fiber is the single most important cost item in tissue tissue costs are low when the fiber costs are low Economic benefits of using recovered fiber are deteriorating; lower qualities remain RCF based but compete in a different league. BHKP is the most important fiber component in tissue, high quality tissue has lowest costs where HW pulp has significant cost advantage, for instance low cost of wood Chemical pulp integration contributes to low fiber costs but tissue production is not typically fiber integrated. Is the integration increasing? Can tissue from low fiber cost areas compete in Europe or are the transport costs too high? There are other important attributes that are as relevant in the tissue market place as the costs Europe cannot be immune but tissue is not moving south TISSUE WORLD BARCELONA 2

4 FIBER DETERMINES THE TISSUE MANUFACTURING COSTS Fiber cost is the single most important item accounting for over 60% of the Jumbo Reel costs and some 50% of Finished Product costs. The percentages may vary but fiber is typically practically always the largest cost item Jumbo Reels (virgin fibre) Finished Products (virgin fibre) TISSUE WORLD BARCELONA 3

5 COSTS AND QUALITY Threat from low cost competition is relevant when the question is of significantly lower costs relative to quality TISSUE WORLD BARCELONA 4

6 RCF HOLDS ITS POSITION IN LOWER QUALITY TISSUE PRODUCTS RCF remains as the raw material for the lower quality, low-priced tissue products, which are not economically viable to produce from virgin pulp. Manufacturing Costs of Tissue Base Paper Virgin Pulp vs. Low Brightness RCF Based Products TISSUE WORLD BARCELONA 5

7 TISSUE PAPER FIBRE FURNISH IN EUROPE Usage of BHKP in tissue paper furnish will increase globally. It will replace RCF (recovered fiber) and other pulp, non-wood pulp mainly BHKP BHKP is used in tissue for quality and availability reasons, there are also economic benefits to use BHKP instead of BSKP. Note! RCF as pulp (i.e. yield of RCP processing taken into account). BSKP RCF Other pulp 7.5 million tons 9.8 million tons Globally use of BHKP in tissue grows faster than tissue production, as most of the tissue growth comes from regions dominated by virgin fibre furnish and very high BHKP share (China). The virginization of the tissue furnish takes place also due to the deteriorating economic benefits of the RCF usage. The general quality increase is part of the virginization, as well. TISSUE WORLD BARCELONA 6

8 SHARE IN BEST HALF OF BHKP MANUFACTURING COST CURVE Latin American producers dominate the best half of market BHKP manufacturing cost curve First half Second half North America 3.2 million tons Europe 4.8 million tons Asia 7.5 million tons Latin America 18 million tons Rest of world 0.4 million tons World production capacity 34 million tons TISSUE WORLD BARCELONA 7

9 SHARE IN BEST HALF OF BSKP MANUFACTURING COST CURVE Best half of the market BSKP manufacturing cost curve includes producers from North America, Europe and Latin America First half Second half North America 13.2 million tons Europe 9.2 million tons Asia 0.3 million tons Latin America 2.7 million tons Rest of world 0.5 million tons World production capacity 26 million tons TISSUE WORLD BARCELONA 8

10 CHEMICAL PULP INTEGRATION IN TISSUE IS RARE Physical integration of chemical pulp and tissue is currently relatively rare, globally only some 12% of tissue capacity is integrated with a chemical pulp mill Share of pulp integration 18% 14% 21% 4% 12% 5% 1% TISSUE WORLD BARCELONA 9

11 Tissue producers want to identify themselves to FMCG business, not to heavy industry TISSUE WORLD BARCELONA 10

12 ONLY MARKET PULP IS EXPORTED TO EUROPE FROM LATIN AMERICA, FROM ASIA COMES ONLY TISSUE From Latin America Market BHKP 4500 Tissue Jumbo reels 50 From Asia (excl. Turkey) Tissue finished products 70 Global trade in the World tons TISSUE WORLD BARCELONA 11

13 CAN THE LOW COST TISSUE REACH EUROPE AT REASONABLE COST? Transportation costs* Latin America to Europe Asia to Europe Within Europe Tons per 40 ft container EUR/t EUR/t EUR/t Pulp bales 25 t Tissue jumbo reels 12 t Tissue finished products 6-8 t * Including land transportation within Europe based on transportation distance of 300 km TISSUE WORLD BARCELONA 12

14 SELECTED OVERSEAS EXPORTS TO EUROPE 2013, 1000 TONS Tissue trade to Europe from other continents including both jumbo reels and finished products accounts for some 4% of total European market volume. Rapid capacity increase in Turkey puts pressure on exports to Europe North America Turkey Asia China Latin America Africa Other Asia-Pacific tons Tissue jumbo reels, total 200 Tissue finished products, total 140 TISSUE WORLD BARCELONA 13

15 COST AND PRICE ARE NOT THE ONLY ATTRIBUTES THAT MATTER IN THE TISSUE MARKETS environmental attributes innovations local production R & D service brands relationships quality portfolio large enough volumes TISSUE WORLD BARCELONA 14

16 CONCLUSIONS Europe cannot be immune, low cost offerings can impact the price levels, but it is hardly possible that tissue turns to a cost driven commodity and moves to the south like happened to HW market pulp The more important the non-cost attributes become the less vulnerable the European tissue industry will be against competition basing only on lower costs The low cost competition, based on low pulp costs, favorable exchange rates or large efficient mills in low cost environment may be competitive in the European markets, however, in many cases Europe is not the best business opportunity for these producers Economic result is best for the tissue players with dominant position in the markets, this is only possible with significant local presence. The best companies in all continents have regional focus TISSUE WORLD BARCELONA 15

17 DOMINANT POSITION IMPROVES FINANCIAL PERFORMANCE SCA Tissue in Europe is an example of how dominant market position improves financial performance; better profits seem to correlate with large size and dominant position which also means local presence and regional focus - EBIT, % - American Players Average Sales and Margins for Selected Players 20% European Players Asian Players Bubble size indicates sales revenue SCA development 10% 0% 0% 10% 20% 30% - EBITDA, % - Note: figures are averages of available periods TISSUE WORLD BARCELONA 16

18 Thank you! TISSUE WORLD BARCELONA 17