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15 March 25
Is tissue about to make a collective mistake?
By Jim Thompson
The tissue industry has done this before, are they about to do it again?
Since the first of the year, several major tissue makers have hinted at or announced expansions. I discuss these “group think” style expansions in my book, “The Pulp and Paper Industry: A perspective for Wall Street” (available on Amazon). Essentially, the companies’ internal analysts, almost as if they worked together (they don’t, and I am not implying they really do) decided at nearly the same time to expand, based on market conditions and the ROI they can calculate.
I think this is particularly true in the tissue and towel business, where the manufacturers are directly linked to the retail markets, and they are highly sensitized to market share. Good data is available, and they watch it weekly.
This time there may be a problem. The tissue business (not the towel business) is directly related to, and I have really thought about this and don’t know how to put it more delicately, the number of rectums and runny noses in the market area served.
We’ll pause here and talk about two other conditions. The facial tissue business took a hit in the early 1970’s when OTC antihistamines became available. There was a step change downward in the number of runny noses in the cold and flu season seriously affecting the facial tissue business.
In developing countries, the first two “luxury items” people want are underwear and toilet paper. People will spend money on toilet paper before almost any other item.
Now that we have gotten through all of that, let’s look at why this condition in the United States may be different than we have ever seen.
The current administration in Washington is committed to sending millions of people that are here back to where they came from. These people all use tissue products just as I have described. If they leave, their tissue demand goes with them. In the past, overexpansion has been corrected by population growth in the following couple of years. Perhaps not so this time.
It is just possible that with current governmental actions we will be facing a decline in tissue demand over a long period in the United States—something that has never happened before (except for the aforementioned antihistamine caper).
Want a deeper dive? Go here.
P.S.:
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We want to welcome Bloomberg's Green Market Box Report this month. See the ad at the top of the page. Say you learned about it from Paperitalo and get $100 off. Here is the URL: https://www.green-markets.com/box/paperitalo.html
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Also, we are going to be making our quarterly PM 40 Free Cash Flow Report available. This is a compilation of SEC filings from the PM40 reporting on their cash available position. If you are interested in this, send me an email at jim.thompson@ipulpmedia.com with "PM 40 Free Cash Flow" in the subject line. We'll send you a sample and pricing.
Note: Neither I or anyone on the Paperitalo staff own any individual pulp and paper stocks.
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