Tissue markets overview and trends that will shape the next 5 years - Paper Technology International 2023 - Paper Technology International 2023 - Flipbook - Page 24

Tissue markets overview and trends that will shape the next 5 years - Paper Technology International 2023

PAPERTECHNOLOGYINTERNATIONAL - Paper Technology International 2023
3. Inflation: Inflation is eroding consumer spending power,
which has historically been a tailwind for private label brands. As
we can see in the image right, US real wages for all wage earners
dropped 12% in 3Q2021 compared to 2Q2020.
However, this is all just a small part of the story. Private label
capacity is growing fast and fragmenting – another trend to keep an
eye on.
Another important dynamic that is just as critical, and
something that is oftentimes overlooked, is the share of private
and public ownership. Looking at the decline in public company
ownership and what that tells us about capital return expectations
has extremely important strategic implications. When investing,
public companies tend to want a shorter ROI, whereas private
companies don’t mind a longer ROI. This is a major factor into why
recent, new tissue growth is occurring within private
companies.
What Role Does Carbon Play in All of This?
Whether voluntary or mandatory, carbon will
increasingly be a cost for producers. We’ve already
seen big brands set net-zero goals which are being
backed with big investments and demands that their
suppliers help them meet reduction targets. We’ve
also seen carbon legislation in various forms that has
been introduced in several regions – creating new
opportunities for the industry to take advantage of
the significant shift in views on the environment.
The image below illustrates North American tissue
greenhouse gas (GHG) emissions by mill, and as we can see, there
are significant differences in the amount of carbon emitted between
various US tissue producers. Those mills that are emitting the least
amount of GHG are advantaged within the industry, whereas those
towards the right side of the curve face a serious risk.
So why is this important?
With the rise of carbon pricing mechanisms, the cost of
doing business will ultimately increase for manufacturers located
within these high emitting regions. In addition to higher prices,
these manufacturers could also potentially lose the business of
retailers and companies who are focusing on their own individual
carbon footprints, which forces them to evaluate the carbon claims
of their own suppliers, transport systems, etc., in order to achieve
sustainability goals.
With procurement-level decisions now being made with
regard to the sustainability of suppliers, which is critical for the
energy-intensive Pulp & Paper industry, carbon impacts of individual
mills are being compared to their peers, and information about the
upstream carbon footprint is being requested.
US Real wages for all wage earners.
Source: FisherSolve
NA. Tissue capacity by company ownership type.
Source: FisherSolve
Overall, the North American tissue market is very likely
to see a cycle of surplus capacity in the coming years, however,
pressure will vary by tissue segment and channel. Even though
exogenous factors such as Covid-19, the Russia-Ukraine war, and
inflation are creating more uncertainty, there are some things we
are fairly certain about: low-cost producers in private labels who
can compete will gain share; the prospect of reduced consumer
spending power will be a tailwind; and carbon costs will become
more widespread in the next 5 years, creating a major opportunity
for owners who can proactively articulate their story.
Source: FisherSolve
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