Tissue roll continues.

Tissue has been a consistent bright spot in the global paper market. The future looks bright as well, though growth may not be as rapid as in years past.

North American tissue markets will continue to grow, but at somewhat lower rates than in the past. The at-home segment (67% of the market) and away-from-home segment (33%) will develop and bath tissue, towel, napkin and facial products, packages, and dispensers will all evolve. Tissue products will be more tailored to individual market segments and will likely have more colorful printing and embossing. New embossing patterns will further enable differentiation. Innovations in toweling dispensers, for example, will ensure increased hygiene standards in locations such as public rest rooms.

Converting and packaging line installations have increased on par with growing demand, and equipment suppliers have become more active in all world regions. Producers have continuously invested in tissue manufacturing facilities. Altogether, 93 new tissue machines started up in North America from 1970 to 2004--an average of 3 new machines/yr. Last year was one of the peak investment years, with 5 new machines starting up (matching prior peaks in 1990 and 1978). Near term capacity changes have been limited--or at least the public announcements are.

The European tissue market is still in a growth mode, although recent large capacity additions have reduced industry profitability. Tissue paper quality is trending upward in Europe, although national differences (e.g. size of rolls and sheets, colors, number of plies) must be considered when launching tissue products.

ASSETS AND INDUSTRY STRUCTURE

The capital outlay for tissue machines is relatively low compared with machines for other paper grades. Due to the small scale of the machines, investment risks are manageable and possible for smaller companies. For example, in Europe (where 7 new tissue machines started up in 2004), the estimated investment cost is EUR 800-1000/annual metric ton of production, with an a large-scale tissue machine producing 60,000 metric tons/yr. That means a new machine can be had for between EUR 48 million and EUR 60 million.

Technical standards for tissue paper machines--in terms of forming method and tissue concept--vary by market and region as well. In North America, twin wire formers account for 40% of installed capacity, followed by fourdrinier (37%) and crescent former (21%). In Europe, the share of Crescent formers is much higher, 37%, at the expense of fourdriniers. New machines typically have modern forming technology--twin wire or crescent former. The through-air-drying (TAD) concept is used heavily in North America and currently accounts for over 25% of installed capacity. In Europe, TAD represents only 6% of capacity. Moreover, most European TAD capacity is in the UK, a market similar to the United States in terms of consumer preferences.

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SUCCESS FACTORS

Business environment and industry structure shape the rules of competition in the tissue industry. A company's relative market position is the source of competitive advantage and, eventually, higher returns. Strategic positioning and operational effectiveness--and their fit with manufacturing and converting assets--determine relative performance.

Strategic positioning and tailoring activities to fit company positioning is a complex process. Tailoring means having a clear view of current asset quality and operating performance and the potential for improvement. Key questions regarding asset quality are the following: What is the technical level and potential of existing production and converting lines? How well does the equipment operate compared to its potential? How companies answer these questions will go a long way toward determining their financial success--or failure.

Note: This article is part of a series by Jaakko Poyry Consulting, Tarrytown, New York, USA, a provider of marketing and consulting services. Contact Ms. Soile Kilpi by email at [e-mail], or by phone at [phone].

JAAKKO POYRY CONSULTING