Australian tissue market developments

Growing imports challenging domestic producers. Australia’s current tissue consumption is in the range of 320,000 tonnes per year, and it has grown at an average rate of about 3.0% per year.

Esko Uutela, Principal, Tissue, EU Consulting/RISI

Market volume has almost doubled in the past 20 years. Australia traditionally used to produce most of its tissue needs, and foreign trade mainly included trading with New Zealand and some exports to the smaller Pacific Islands. However, this situation has changed since the late 1990s as new, competitive Asian capacity has been built and, as a result, imports from outside the region have grown remarkably.
Australia’s imports of tissue took a small break related to environmental issues and dumping claims in 2007-2008, but began to grow again after those claims were rejected and reached new peak value of 155,000 tonnes in 2012 (compared to only 14,000 tonnes in 1993 and 73,000 tonnes in 2003). Exports have been rather low, although varied slightly from year to year and declined to only 13,000 tonnes in 2012 as a result of PM closures in 2011. Imports declined to 122,000 tonnes in 2013 but likely exceeded 130,000 tonnes in 2014 (final foreign trade figures were not available at the time of writing). Exports were 14,000 tonnes in 2013 but grew somewhat in 2014 as exports to New Zealand and a number of other countries in the Asia-Pacific region increased.


A MAJOR PART OF AUSTRALIA’S INCREASED IMPORTS HAVE BEEN PARENT ROLLS (72% IN 2013), MAINLY FROM CHINA AND INDONESIA. Independent converters and smaller companies have used the opportunity to purchase low-priced tissue parent rolls from China and Indonesia and, consequently, have been able to compete against the two dominating players – Kimberly-Clark and SCA/Asaleo Care – with good quality products based on virgin pulp at an attractive price. The complaint against parent roll dumping was abandoned by Australian authorities several years ago, but environmental concerns about the sustainability of tissue coming from Indonesia and based on pulp made from tropical rather than strictly plantation wood are still hampering imports as NGOs continue their campaigning. All the three main retailer chains – Woolworths, Coles (owned by Westfarmers) and IGA supermarkets (owned by Metcash) – withdrew products based on Indonesian pulp from their shelves and are still suspicious to accept products without environmental certification given by the most respected organizations, such as FSC. This boycott has substantially limited the possibilities of APP’s subsidiary Solaris Paper to sell converted products in the consumer tissue sector from their recently established converting plant close to Sydney. However, APP has announced that it will no longer use wood from indigenous forests and the company has made efforts to get part of its former business back, reportedly with some success (Figure 1).


THERE IS STILL POTENTIAL FOR GROWTH, BASED ON PER CAPITA CONSUMPTION. Australia’s per capita consumption of tissue was 14.3 kg in 2013. This is substantially below the level in North America (about 24 kg) or in Western Europe (almost 16 kg), indicating that there is still a lot of growth potential. Australia’s population is growing at an average rate of 1.0% per year, which is higher than the average in developed countries and also contributes to tissue market growth.
The structure of consumption resembles that of Western countries, representing a mixture of Western European and North American patterns. Two-ply TAD-based toilet paper has been hit by competition from three-ply and even four-ply products based on conventional technology, following the Central European patterns. The toweling sector has developed strongly with volume growth rates of 5-6% per year in the kitchen rolls in recent years, but the consumption level still significantly lags behind the USA. The kitchen toweling sector has profited from the new TAD-based “Viva” towel launched by Kimberly-Clark to compete with the “Handee Ultra” TAD towel from the former CHH Tissue, which was acquired by SCA and after the stock listing now operating under the name Asaleo Care (SCA 32.5%).


AUSTRALIA HAS TRADITIONALLY BEEN A MARKET FOR BRANDED CONSUMER TISSUE PRODUCTS, although the private label sector has recently started to pick up, particularly in the kitchen towel category and recently also in facial tissue. The latest retail reports suggest an overall private label share of about 21% based on volume, but the value-based share is not more than nearly 13% (Table 1).
The two largest retailers, Woolworths and Coles, as well as the German-headquartered hard discounter Aldi (not participating in outlet scan surveys) have made strong efforts to sell an increasing range of retailer label products. But there has been practically no growth in the total private label share in recent years, mainly because the toilet paper segment is clearly dominated by producer brands.


ALDI SELLS ONLY PRIVATE LABEL PRODUCTS so its estimated share of 11-12% (hygienic products normally have an above-average share of Aldi’s sales) should be added to the shares shown in Table 1. Aldi’s share of Australian grocery retailing has shown strong growth in the past years (from 2.9% in 2005 to 10.3% in 2013, exceeding the third largest chain IGA recently), so we can conclude that the average private label share has grown despite no growth shown in the outlet scan surveys without Aldi. Aldi has growth ambitions in Australia. In October 2014, it announced an investment plan of another A$700 million for building two additional distribution centers and as many as 130 stores in Western Australia and South Australia. Financing will come also from also Australia’s cash flow rather than a capital injection from its German parent, showing that the company has been successful in Australia. The new investment will take Aldi’s total investment in Australia close to A$4 billion since 2001, when it entered Australia.
In general, brands are under pressure and retailers are deleting variants to make shelf space for extended private label ranges which are selling at 20%-60% lower prices than brands. In facial tissue, the difference between the volume share and the value share is at the highest, also partly reflecting low-priced imports of facial tissue from Asia. Another major global discounter, Lidl, is in Australia as well and it is expected to expand, too. These developments are likely to result in a further increase of the private label share in Australia (Figure 2).Tissue quality requirements are at a high level in Australia. By quality category, premium category tissues – with two TAD PMs and three-ply and four-ply products by other producers – dominate the Australian toilet tissue sector, with an estimated combined share of some 82% of the total consumer toilet tissue sales based on value, and about 80% based on volume. In kitchen towels, the share of premium products is somewhat lower, 71% based on value and 59% based on volume. The share of generic quality products is relatively high in kitchen towels, reflecting the higher private label share in this product segment (most private labels are included in the generic quality category). ABC Tissue’s multi-ply products have offered strong competition for TAD tissue-based premium products, and competitors have had to react by introducing their own multi-ply product versions, but under brand names other than the leading TAD brands.


ABC Tissue has challenged the two traditionally leading players and it has been quietly but efficiently working to rapidly expand its business. ABC has been one of the purchasers of tissue parent rolls from Asia, but it also acquired a domestic mill in Queensland and invested in a modern tissue PM installed at its Wetherill Park converting facility in Sydney. ABC Tissue has been able to develop a good three-ply (and also four-ply) toilet tissue brand, “Quilton”, which has been successful as a high-quality, virgin pulp-based product with lower price points on the shelf than the leading TAD tissue-based products offered by K-C and Asaleo Care (SCA in minority). ABC Tissue is now the clear market leader in the toilet tissue category with a market share of about 38%. Both K-C and Asaleo Care have lost market share to ABC Tissue recently.
Recent market reports on retail tissue sales by outlet scanning/auditing companies indicate that over the three main product groups, toilet tissue, facial tissue and kitchen towels, Kimberly-Clark Australia continues to be the leader with a value-based market share of 31.5%, followed by ABC Tissue (28.6%) and Asaleo Care (26.2%, Figure 3). ABC Tissue has passed Asaleo Care in overall market share thanks to its dominance in toilet tissue, but in branded household towels it is weak (but making private labels, though). K-C has lost importance in toilet tissue but strengthened its position in towels. Asaleo Care is now the supplier No. 2 in all three categories, but has lost five percentage points of its overall value-based market share between 2011 and 2014 in Australia.


The recent history of Australian capacity changes includes only restructuring measures. In 2011, K-C Australia closed two older tissue PMs at its Millicent mill in Australia and in 2013, ABC Tissue rebuilt its PM2, but also shut down the smaller PM1 after the PM2 rebuild was completed.
Currently only one capacity expansion project is near completion in Australia. Encore Tissue (see article on page 74) is replacing its second-hand PM with a new tissue PM from the PMP Group. All the most important components will be new, only the Yankee cylinder will remain and the existing foundations will be used for the new PM. Start-up is expected to take place by the end of the first quarter of 2015. Capacity increase will in the range of 10,000 tonnes per year, or in practice even more as the old PM was not able to produce anything near to its nominal capacity of 20,000 tonnes per year.
Encore Tissue has been mainly in the AfH business, but the new PM could create opportunities to increase its existence in the private label retail business as well.


KIMBERLY-CLARK AUSTRALIA ANNOUNCED IN OCTOBER 2014 THAT IT WILL INVEST A$20 MILLION IN ITS MILLICENT FACTORY in South Australia as a sign of its continuing commitment to the region and its 400 workers.
The investment over 12 months will involve capacity and equipment upgrades to increase production at the site, but no jobs are expected to be lost or created as a result. No more details are available but we do not expect any major tissue base paper capacity increase.
Several years ago ABC Tissue announced major development plans, started with the purchase of a large parcel of land in Brisbane about 30 km from the existing Queensland mill in Carole Park as well as additional land next to its existing mill in Wetherill Park in Sydney. The ambitious expansion plans includes two new tissue machines, but the financial crisis, tightened financing possibilities and probably also cost-competitive parent roll imports have postponed the expansion indefinitely. It looks like the planned new machines would be located at the Wetherill Park facility in the Sydney metropolitan region if built.
Weaker Australian dollar has made parent roll imports US$150-200/tonne more expensive than earlier, so the revival of the investment plan is possible if no major change occur in the exchange rate.
Esko Uutela, Principal, Tissue, EU Consulting/RISI, can be reached at: Tel: +49-8151-2919, Mobile: +49-172-852 4447 or Email: euutela@risi.com.



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