In the Cigarette-paper Business, the Emphasis is Shifting from West to East and from Quantity to Quality

Source from:  Tobacco Reporter  08/09/2013

Whenever I have been writing in the recent past about how most tobacco-industry demand is now coming out of China or other countries of Asia, it has become a matter of course to preface these comments with phrases such as "it goes without saying." Such a phrase might be a little stilted, but it does illustrate an important point. For instance, (it goes without saying) that the China National Tobacco Company (CNTC) is the biggest tobacco producer, manufac-turing 40 percent of the world's cigarettes and, in doing so, consumes about 120,000 tons of cigarette paper alone.

So when in April, I asked Ted Zhang, of the China-based Mudanjiang Hengfeng Paper whether his company's busi-ness was increasing at the moment, it was no surprise when he answered "yes." And when I asked why that was, he told me that the Asia market, including China, was growing enough to more than cancel out the drop in other markets, such as the United States and countries of the EU

Liem Khe Fung, of Indonesia-based BMJ, meanwhile, said his company's paper business was growing because it had been successful in penetrating the growing markets of Southeast Asia, but also due to some capacity downsizing in Europe and Asia during the past five years. And Liem went on to say that the tobacco-industry market would continue to shift from the developed countries, such as the United States and those of Europe, to developing countries, such as those in Southeast Asia. "This will keep our business growing in the next five years," he added

The story was a little different when it came to Fabrizio de Martis, of B.T.S, whose paper business has been declining for some years. For Italy-based B.T.S, most paper demand comes from Africa and the Middle East. But he supported something that Liem said when he mentioned that part of the reason for the decline in B.T.S' paper business was the closure of some important paper mills in Europe (whereas Hengfeng and BMJ produce their own paper, B.T.S offers paper produced by other companies). And another reason, he added, was the concentration of cigarette production being placed into the hands of the multinationals.

This was a point that Zhang had made. The CNTC, Philip Morris International, British American Tobacco, Japan Tobacco International and Imperial Tobacco together accounted for more than 90 percent of the tobacco market, so tobacco-industry paper suppliers had to be certified by those companies to ensure sustainable development.

And in a possible reference to that certification process, Zhang said the tobacco-industry paper market was in transition and suppliers needed to focus on quality rather than quantity. But he said also that demand in the future would be for products that might offer health and environmental benefits.

De Martis' view of the future for papers sees a big boom in demand for rolling papers or booklets and papers for cigarette tubes, and a steady growth in demand for LIP papers, continuing the trends of the past three years. He said he believed that the production of tipping paper was going to become more localized and that his company was going to see more opportunities for base papers than for printed tipping. But he issued a warning against the presence in the business of illicit companies and traders.

Offerings

Given de Martis' optimistic outlook for LIP papers, it's not surprising that the latest addition to B.T.S' product offering is an LIP paper produced from wood pulp.

Hengfeng is currently promoting a new product that it refers to as a tipping-base paper with a natural porosity, such that it doesn't have to be perforated. This new paper, said Zhang, could play a significant role in reducing tar deliveries and, therefore, might contribute to a harm-reduction strat-egy. Hengfeng has a very effective R&D center, Zhang added, and every year it produces at least two new products.

BMJ, meanwhile, has been focusing its R&D efforts mainly on introducing improvements to its existing products. These improvements, said Liem, were aimed at meeting customers' expectations in areas such as burning characteristics— the production of a compact, white ash, for instance.

So looking at customers' expectations in a wider con-text, what are the types of tobacco-industry papers most in demand at the moment? Well, for de Martis it's very specific: a 50 Coresta Units (CU) LIP paper; while for Liem it's a range: cigarette paper with porosities of 30, 50 and 70 CU and basis weight of 25 grams per square meter; and for Zhang it's almost aspirational. All tobacco companies wanted to reduce harm, he added, so they were looking for papers that might help them in that regard. And they also wanted packaging materials that were environmentally friendly.

Of course, while Zhang might be correct in what he says, manufacturers will also be looking closely at prices, so I asked at what level were tobacco-industry prices at the moment. Well, manufacturers should be happy; competition, it would seem, is keeping prices down. Liem said that prices were not as high as they were 10 years ago, and Zhang agreed that they weren't as high as they previously had been, though he conceded that cigarette paper was a high-profit product.  De Martis said prices were stable at the moment: at  medium-high levels in Europe but lower in Asia.

Finally, returning to where this story started, with the demand/supply situation, Liem believes that it is pretty much in balance, while Zhang tends to the view that cigarette-related paper is in oversupply. De Martis, who is clearly in a slightly different position, believes that while demand is good, obtaining the paper to meet that demand is, for various reasons, more difficult. Enditem