The “fluff pulp” sector of the forest products is running against the grain, with anticipated growth averages forecast to be in the range of 3.6%-3.7% against less than 2% for other pulps products. This potential return has the paper giants angling for market share.

Port of Longview, WA
Port of Longview, WA

In May, two forest products giants announced a sale that reverberated from the concrete canyon of Wall Street to the lush woods of the Piedmont Plateau and Appalachian Highlands. International Paper agreed to pay $2.2 billion in cash to Weyerhaeuser Co. for five cellulose fibers pulp mills in the southern US, and one each in Canada and Poland. This marked one of the biggest deals in recent years in an industry struggling to grow. The object of International Paper’s affection is an oddly named product that most people wouldn’t recognize: Fluff pulp. This fiber comes from bleached softwood Kraft pulp, sourced from such wood as the slash pine. Fluff pulp is a vital ingredient in highly absorbent products, notably disposable diapers and feminine hygiene. Demand for those items is growing and expanding rapidly in emerging economies, notably China.

Fluff Pulp Niche

Hardwood pulp
Hardwood pulp

By any measure, fluff pulp is a niche product in the pulp and paper business. According to Benjamin Sirois, associate economist with the forest products industry research group RISI, fluff pulp production in 2015 totaled about 5.8 million metric tons globally, or approximately 3.5% of global wood pulp consumption. RISI estimates annual growth over the next five years will average 3.7%, while Smithers Pira, a packaging and paper research and consultancy group based in Surrey, Britain, puts that number at 3.6% growth. While that kind of number doesn’t seem all that exciting, it’s a relatively bright star in a contracting universe. Paper-grade pulp is expected to only grow 1-2% annually and pulp used in printing is in serious decline.

Fluff pulp “has a very stable and moderate demand growth compared to paper grade products,” said Sirois.

North America dominates fluff pulp production. With its latest acquisition, International Paper will dominate the industry. After the sale is completed, most likely before the end of this year, International Paper will control about 38% of global production. That will eclipse current industry leader Georgia-Pacific, which has a 28% market share, according to RISI. Domtar Corp. is a distant third.

International Paper has spent heavily to bolster its fluff pulp manufacturing. Last year, for example, the Memphis-based company said it would invest $135 million to convert a bleached board mill in North Carolina to fluff pulp.

International Paper isn’t alone. In late 2014, rival Domtar announced it would invest $160 million in converting an Arkansas mill to fluff pulp, a project that should begin producing soon. In March, the Brazilian paper producer Klabin inaugurated a $2.5 billion pulp mill project in Brazil, which includes a large fluff pulp facility. (The steep cost includes power generation equipment.) And, in Sweden, Stora Enso is investing about $30 million to add more fluff pulp capacity to its Skutskär mill.

These four projects will add a total of almost 1.5 million tons fluff pulp capacity to global production, bringing with them some concerns of short-term oversupply and price reductions. And that equation doesn’t include an even bigger project now wending its way through engineering, environmental and permitting processes. China’s Shandong Sun Paper Industry signed a memorandum of understanding earlier this year to build a $1.3 billion wood pulp mill in Southern Arkansas. Scheduled to come online in 2020 or 2021, that mill will have a capacity of 700,000 tons, but it isn’t settled yet whether the mill will produce only fluff pulp or other pulp products as well.

Fluff Markets: Potential in Emerging Nations

Sun Paper’s plans help explain fluff-pulp related industry dynamics. Those differ from paper-related production where mills often integrate pulp and paper in one location.

In North America and Europe, the markets for feminine hygiene and disposable diapers products are extremely well established, with decades of common utility. In these developed countries, demand is pretty much flat, and diapers use less fluff pulp than in years past, although so-called adult incontinence products are gaining ground as people live longer.

But in the emerging world, these are exactly the sorts of products that gain use as incomes and consumer buying power grow.

The growth potential for these products in emerging markets is notable. Disposable diapers constitute the single largest product usage of fluff pulp, about 40% of total according to RISI, 35% according to Smithers Pira. But as Phil Mango, an associate consultant with Smithers Pira, points out, disposable diaper penetration in Europe and North America is between 80% and 90%. In Africa and Asia, that penetration is a scant 10-12%.

That portends enormous potential. According to Sirois, more than 90% of growth in fluff-pulp demand will come from emerging markets. Not surprisingly, China is the single biggest force. Sirois estimates that China accounted for 16% of the global fluff pulp market in 2015. By the end of 2020, China will consume 20% of world production.

However, as Sun Paper demonstrates, that doesn’t mean fluff pulp production will necessarily move to China or neighboring countries in Asia such as Indonesia or Myanmar. While consumer products production of diapers or feminine hygiene pads may be close to the end user, fluff pulp production is almost always located close to the fiber source. North American forests, dominated by the southeastern US, are the main source, with some sourcing in Northern Europe and South America.

After it is produced, fluff pulp is dried and rolled, then containerized for transportation. It now costs just over $1,000 a ton, delivered to port. In the US, several ports handle the export of fluff pulp, which is expected to grow over time. They include the Port of Virginia, Savannah, and Wilmington.

While demand for fluff pulp is expected to rise steadily over the next half-decade, there are some potential competitors on the horizon. Brazil’s Suzano Pulp and Paper last year inaugurated a 100,000 tons per year plant that creates pulp from eucalyptus trees, what is billed as the world’s first hardwood-based fluff pulp. Also, consumer products giant Procter & Gamble developed both diapers and feminine hygiene pads that replace fluff pulp with a petroleum-based core. But as Mango points out, fluff pulp is still cheaper than the petroleum-based products, even with cheap oil.

“Fluff pulp is one of the lowest cost and most sustainable fibers on earth,” Mango said. And, he added, fluff pulp is biodegradable and renewable.