What If the Pulp Prices Remain High?
In the unlikely scenario that pulp prices will remain on the current levels in the longer run, the tissue industry will most likely find a way to adjust to the situation. Premiumisation, higher bulk, lower sheet count, developed embossing etc. justify higher prices per tonne and reduce the direct impact of the pulp costs.
Most likely there will be more polarisation to the cost driven competition and to the premium-end that competes with other means than price and can thus easier increase the prices.
Pöyry Management Consulting is the leading advisor to players within the global Paper, Pulp, Packaging and Hygiene sector (www.poyry.com)
PULP PRICES AND CONVERTERS
Tissue sector changes every period of course according to raw materials such as PULP. Tissue Converters trying to find new solutions on this matter. According to FOEX PI there are big differences between 2011 and 2019. Tissue converters trying to keep their cost stable while raw material sectors becoming independent .
Pulp prices have seen their share of spikes over the years. 2011 brought with it the industry’s highest price point in 30 years, only to be usurped in 2015. Currently, the price of wood pulp is forecasted to rise at an estimated annualized rate of 5.1% leading up to and through 2019.
The reasons driving the demand for pulp-based products vary and are tied to different geopolitical, economic and production/transportation factors. Regardless of the impetus, soaring pulp prices are causing tissue manufacturers to re-strategize products and tissue converters to adjust to the industry’s unique needs.
Fiber is the largest input cost for tissue manufacturers (35-40% of cost of sales), therefore reducing the fiber cost per roll is a top priority for manufacturers faced with steep pulp prices. In North America, the consistent price gap between the more expensive long fiber (NBSK, principally from Canada) and short fiber (BHK, principally Eucalyptus from Brazil) seems a good place to start — eliminate the long fiber and drive down costs. As an example, in a line with annualized production of 70,000 tons/year, the replacement of 12% of long fiber (NBSK) with short fiber (Eucalyptus) could generate approximately $1.0 MM/year in savings (using forecasted 2019 pulp prices).
However, the fix isn’t quite that simple. Removing the long fiber compromises tissue strength and quality, both of which are key competitive advantages and sales differentiators, especially for premium product lines.
To control costs and maintain profitability, North American manufacturers commonly employ two methods:
- De-sheeting to reduce the number of sheets of toilet paper or tissues in each package while holding the bulk (volume) of the product and retail prices consistent
- Reformulating fiber mixes to better leverage less expensive pulp