Tissue Capacity Expansion Expected in H2 2024
Introduction: In H1 of 2024, with the constant release of new tissue capacity, the market supply has been relatively loose, suppressing the tissue price hike. However, less than half of the anticipated tissue capacity has been launched in H1 of the year, and the majority is scheduled for Q3 of the year. As the market peak season arrivals in H2 of the year, the market supply and demand are both expected to increase, and the tissue price hike may expand to 2-3%.
From 2020 to 2024, the new capacity expansion first rose and then dropped
The newly added tissue capacity first rose and then headed down from 2020 to 2024. The launch of new tissue capacity reached a peak in 2021, but as the tissue price hovered at the bottom in 20202, tissue mills were less incentivized to invest in new capacity. Therefore, the newly added capacity registered a 5-year low. As tissue prices picked up in 2021, the release of new capacity also accelerated. In 2022 and 2023, tissue capacity slowed down slightly but was held around 1.6million ton/a each year. In H1 of 2024, the newly added tissue capacity was 640kt/a, down 32.35% Y-O-Y, and the commissioning was mainly concentrated in Q1.
As seen from M-O-M changes, the capacity release concentrated in Q1, especially January, and then declined gradually. The capacity expansion in January was the highest at 205kt/a, mostly from tissue machines of medium and large-sized integrated players, and few new tissue machines were seen at small-sized players. From March to June, due to constantly rising production costs, the release of newly added capacity slowed down. The capacity expansion in June was the smallest by far, which is only 50kt/a at tissue mills in Sichuan and Shanxi.
From a regional perspective, new tissue capacity mainly concentrates in Hubei, Hebei, Anhui, and Guangxi, among which Hubei accounts for 23% of the total due to new tissue machines installed by Taison Group and Hubei Libang Paper. The proportion of Hebei reaches 20%, mainly supported by capacity expansion at local medium and small-sized tissue mills. Anhui accounts for 14%, which is also attributed to Taison Group. Guangxi accounts for 11%, and its share may increase in H2 of the year.
Tissue price hampered by rising supply pressure from new capacity expansion
Due to constant capacity release, the tissue market supply remained abundant in H1 of the year. However, the end demand was insufficient, affected by factors such as rising express freight that suppressed online sales. Due to constantly rising tissue prices, as of June 14, the average tissue price was RMB 6,683/mt, up 0.88% from H2 of 2023, but down 7.64% from H1 of 2023.
Supply to rise continuously in H2 with the release of new capacity
According to SCI, the planned new capacity in 2024 is expected to be over 1.7 million tons/a, but less than half or only 640kt/a has been launched in H1 of the year. Most of the newly added capacity is scheduled for Q3 of the year, with the majority located in South China. The tissue demand is generally inelastic, and the market will enter a traditional peak season in H2 of the year. Therefore, as demand gradually improves, the market supply and demand may both increase.
In conclusion, the tissue market supply and demand may both increase in H2 of 2024. However, as the import dependence degree of pulp is relatively high, and the launch of new pulp capacity may affect tissue price rise sentimentally. SCI reckons that the tissue price may first rise and then drop, and the hike in tissue price may expand marginally to 2%-3%.
All information provided by SCI is for reference only, which shall not be reproduced without permission.
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