A combination of too many suppliers and too much tonnage has meant poor profitability for Japan’s tissue makers. There are, however, some signs that the market might finally be getting in better balance.
Hugh O’Brian
The Japanese tissue market has been challenging, to say the least, during the past several years. Overcapacity of about 15% on the production side, and a fragmented market structure which is made up of perhaps four or five major suppliers and something like 87 or more smaller suppliers, make life difficult for companies in the tissue business here.
The four or five ‘major‘ suppliers have market shares of 10-15% depending on the grade. The ensuing competition among all the suppliers has led to a tough competition for orders, with the result being a downward spiral in sales prices which have been wrung out of the suppliers by supermarkets and retailers who are very keen to use their power to improve their own margins.
OJI NEPIA ALIGN SALES WITH PRODUCTION. We spoke recently in Tokyo with two senior executives at Oji Nepia, Mr. Kazuhiko Saiwai, Managing Director and Mr. Sueo Nagai, Senior Director, of the company’s Production Division. Oji Nepia, which is a 100%-owned subsidiary of Oji Paper, Japan’s biggest paper company, was formed in its present structure in April 2003 when the three production units in the north, central and south parts of the country were combined with the Nepia sales company. Before that time, says Saiwai, the sales and production functions had been separate operations. “By putting the production and sales groups together,” he explains, “we have been able to better align sales and production and also get a better grasp of consumer needs.”
The company has three facilities making tissue paper, namely the Kasugai mill located very near to Nagoya in central Japan, the Tomakomai mill on Hokkaido island in the north and the Tokushima plant which is on Shikoku island in south Japan. Total tissue production capacity is close to 250,000 tons from Oji Nepia, although due to the overcapacity the company has been making about 210,000 annual tons in recent years. Oji Nepia is among the big 3 of Japan’s tissue market, with Daio in the number one spot as far as market share, and Crecia and Oji Nepia, ranking very closely as two and three, respectively.
FACIAL TISSUE IS ESPECIALLY LOW PRICED. A trip to a supermarket makes it clear that competition is tough, especially for facial tissue, which is widely used in Japan for numerous tasks and is sometimes seen as a type of kitchen towel. Prices of around Yen 50 (equivalent to USD 0.50) per box of 200 2-ply facial tissues can be found. At levels this low, it makes you wonder if the sales price can even cover the cost of fiber in the tissue, let alone the other manufacturing costs, as well as sales, administration and distribution costs. Clearly the overcapacity is depressing prices and it appears that it must be hurting all tissue producers. And there are plenty of producers to be hurt.
“The market situation here is pretty unique as far as I can tell,” says Saiwai. “To start with, in addition to the big and mid-size companies, there are about 87 small tissue producers making 5,000 to 20,000 tons per year. Some of these little companies go out of business each year but there are still lots of them around. We do know that they are having a tough time and many are merging or cooperating in an attempt to survive. But they certainly have not disappeared.”
A few years ago Oji Nepia attempted to accelerate the pace of consolidation and mergers in the industry. It ran its paper machines and converting lines at full speed to put additional volumes on the market to both gain market share and force the higher cost producers out of the market. However, says Saiwai, while some of the smaller guys went out of business, it still did not correct the situation to bring the supply/demand situation back into balance.
TOP 4 MAKE LESS THAN 50%. The total Japanese tissue production in FY 2006-07 amounted to around 1.7 million tons, with the top 4 producers, Daio, Crecia, Oji Nepia and Ehime making less than half, around 47%. The smaller and mid-sized producers made about 892,000 tons, or 53 %. Imports are very small at about 1.5% but, says Saiwai, it appears that APP is entering the market so this figure may rise in the future.
Bath tissue accounts for about 1 million tons of Japan’s tissue market. Of this, about 36% is made from virgin fiber and supplied by the large companies, while the remaining 64% is generally based on recycled fiber and comes from the small and mid-sized players. Private label tissue is estimated at about 15% in Japan and is increasing, says Saiwai.
INNOVATION AND NEW PRODUCTS. To attempt to meet the financial challenges posed by the market situation, Oji Nepia has been doing several things. Numerous new products and package designs have been launched, such as the ‘Celebrity Nose’ lotionized facial tissue which is aiming to build the Nepia brand in the all-important facial category. Oji Nepia has found this to be a very popular item, with sales especially strong during the spring and fall seasons when colds and flu-like symptoms occur due to hay fever and other allergies.
On the production side, says Saiwai, costs have been cut through a program called CORE, meaning COst REduction. Starting in 2006, Nepia has cut costs out of its systems through numerous small improvements that have increased efficiency and yield from both the paper machine as well as the converting operations. Senior director Mr. Nagai says: “We invest around JPY 1.5 billion (USD 15 million) each year in productivity improvements in automation and other efficiency enhancements. The aim is to get labor costs down and productivity up.”
PRICES STARTING TO RISE. There are finally some signs that the market might be ready for much needed price rises. With costs rising due to increases in fuel and fiber costs, Oji Nepia has announced increases and is starting to see them implemented. Profitability, which have been unacceptably low, says Saiwai, is starting to go up. “Profits are going up a bit because prices are going up. The supermarkets have realized that we need to get better returns for our products so there is at least some improvement in the situation.”
“Always choose the utmost technology: the TIME700 line is an example”
After 10 years from the purchasing of the first machines brand named Fabio Perini S.p.A., two Sincro model 7.6, Oji Nepia has installed in 2007 a TIME700 converting line for the production of single and double ply toilet rolls. A well-considered and well-pondered decision based on the changed conditions of the Japanese market and dictated by the need of combining elevated production performances with the best quality of the finished product. The decision to acquire the Perini lines in 1997 was imposed by the will to have automatized machines with major flexibility and efficiency. The models Made in Italy met all these requests. The two Sincro 7.6 converting lines, operator friendly and with reduced maintenance needs, have been the perfect production combination which has accompanied the company growth up to 2005, when the conditions of the Japanese market began to change. The raw material prices raised the final sales prices of the finished rolls were reduced drastically and without control, thus gain margins were reduced. All this resulted in a new economic scenario urging in a altering the course in terms of production. Thanks to the launch of the TIME philosophy in 2005 from side of Fabio Perini S.p.A. Oji Nepia has been able to know the re-evolution in winding guaranteeing elevated production efficiency and a high-quality finished product. Speed, reliability and production performances, these are the keywords which has convinced the technician team of Oji Nepia under the guide of Plant Director, Satoshi Hosokawa. “The vision of Oji Nepia is to always choose the utmost technology can offer and the TIME700 line is for us an example” says Satoshi Hosokawa.
“Thanks to the new TIME rewinder model we are able to produce soft products with elevated production speeds: after one year from its installation production has risen by 40-45%: an exciting result which has exceeded our expectations, confirming that Fabio Perini S.p.A. is not only a machinery supplier, but an excellent partner in terms of know-how and service,” concludes Hosokawa.