How are acquisitions changing the Brazilian tissue market landscape?
Large pulp producers are pushing for acquisitions to get a stake in the tissue market, resulting in greater integration
Increasing production costs and inflation rates have continued to affect the margins of Latin American tissue producers through 2022, especially those that are not integrated with pulp production and paying high prices for raw materials.
This scenario has paved the way for large pulp producers in the region to push for acquisitions.
Suzano has acquired Kimberly-Clark’s 130,000-tonne-per-year tissue business in Sao Paulo state, Brazil, for $175 million, in a deal that will lead to greater integration and consolidation in the country, sources told Fastmarkets.
Announcing the Kimberley Clark deal on October 25 - which is still pending approval by the Brazilian anti-trust authority Cade - Suzano said it will hold about a 22% share of the Brazilian tissue market, with 280,000 tonnes of capacity. That puts it just behind Softys (the tissue arm of Chilean CMPC), which acquired Carta Fabril and Sepac and now has around 23% of the Brazilian tissue market.
Sources expect one of the remaining large, non-integrated tissue producers, Mili, to be sold soon, with another large pulp producer in Brazil, Bracell, widely expected to become the new owner.
Integration of pulp mills and tissue plants
“These deals are changing the competition landscape in the Brazilian tissue sector once again,” Fastmarkets economist Esko Uutela said.
If we see another acquisition led by a pulp producer, it will become very tough for smaller and middle-sized tissue companies to survive.
Uutela said the increased integration of pulp mills and tissue plants was not particular to Brazil, but has been taking place around the world.
“It is happening in China and Indonesia, and in the United States, Germany and Portugal,” he said. “But in Brazil, integrated players have, in principle, an [advantage, because] they are self-sufficient regarding fiber and energy. I expect industry restructuring and mill exits to happen.”
Officially, Bracell is currently looking only for organic growth, with the addition of four tissue paper machines (PMs) besides its pulp lines at Lençóis Paulista in São Paulo state, scheduled to start production in 2024. That will bring its total tissue production capacity of 240,000 tonnes per year, meaning the company could debut in the market as a top-three supplier.
The appetite of pulp producers to add tissue capacity is explained by the lower costs that can be realized through integration, but also as a specific fiscal aspect of Brazilian business. All exporters in the country receive credits related to the Brazilian federal excise tax.
“I believe that tissue production in Brazil is reaching a new status, working a way to refund these tax credits, making it really positive for pulp producers to [be able to] benefit from that,” a source said.
“Significant room for growth in tissue”
In a conference call with analysts, Suzano’s chief financial officer Marcelo Bacci said the company had the cash to complete the Kimberly-Clark deal without any extra funding.
During the same call, Suzano’s executive officer for consumer goods & corporate affairs, Luis Renato Bueno, said the company will also keep to its organic growth plans with a new tissue plant at Aracruz in the central coastal state of Espírito Santo, with the capacity to produce 60,000 tonnes per year.
“We already highlighted the product premiumization and [the fact there is] significant room for growth in the per capita consumption of tissue in Brazil” Bueno said. “Domestic consumption is 7 kilos per person per year compared with 14 kilos per person per year in Chile and 29 kilo per person in the US,” he added.
The executive said the acquisition of the Kimberly-Clark tissue mill would bring complementarity of both product categories and regions, as Suzano previously had a higher presence in the north and northeastern regions of the country, while Kimberly-Clark has a strong presence in the southeast.
Suzano intends to keep brands as they are, Bueno said, adding that the Brazilian market will continue to see competition, despite higher integration.
“Brazil still has around 50 tissue companies with different brands in the market, meaning that there are still a great number of players,” he added.