Tipping paper suppliers meet customers’ increasingly complex requirements with a mix of consolidation and innovation.
By Stefanie Rossel
Following contracting global cigarettes sales volumes, the market for tobacco papers—already concentrated—saw further consolidation in 2016. Both moves came from Delfortgroup and were aimed to strengthen the company’s presence in the U.S. market. In January 2016, Delfortgroup announced its acquisition of the Mundet Group. The deal gave the company additional manufacturing capacity in Virginia and Tennessee, USA, and Toluca, Mexico. In August 2016, Delfortgroup took over Shamrock Specialty Papers in Greensboro, North Carolina, USA.
The acquisitions will enhance Delfortgroup’s strength as a global manufacturer for the whole “solution” range involving cigarette, plugwrap, tipping base papers and bobbins, along with a wide variety of papers for specialty product applications, according to CEO Martin Zahlbruckner. With 2,000 employees in six plants in Austria, Hungary, Czech Republic, Finland and Vietnam, Delfortgroup develops, manufactures and distributes high-performance specialty papers for the tobacco, pharmaceutical and food industries. In 2015, the group generated a consolidated turnover of more than €740 million ($789.2 million).
In the tipping base paper sector, Delfortgroup is one of only a few committed producers worldwide. They all face a number of challenges as the tobacco industry finds itself in a state of transition, explains Roman Reischl, managing director of German tobacco paper manufacturer Glatz Feinpapiere. “As was predicted last year, customers’ performance in terms of orders and dispositions changed massively,” he says. “There are more and more short runs with narrow time for production and delivery. It is hardly possible to get reliable forecasts … so we have to be very agile and flexible. For us—and probably for everyone in paper production—this means that planning becomes more and more difficult and complex.” He adds that as a family-run manufacturer, his company lives up to the challenge. “We have a simple and flat communication structure, which enables us to react quickly to everything, and we are absolutely flexible in terms of small stock-keeping units or volumes.”
While tipping base paper is Glatz’s main business, the company also supplies cigarette paper and plugwrap. In all segments, Reischl relates, complexity is increasing, which is also putting pressure on costs. “Fortunately, Glatz is very strong in tipping—we have many years of experience in production and a close cooperation with printers so that our innovation power is on a high level, while staying independent from the printing industry itself. This is extremely important as tipping base paper is not at all a commodity product. It’s more delicate and complex, so only a few select can produce it.”
He says that the complexity of all cigarette paper products makes it necessary for Glatz to concentrate on its core competences of tipping and low-ignition propensity paper, and continue innovating further in these segments. “These are segments where there is still potential for innovation, and if you carry out innovation, you will reap the reward, unlike in the cigarette paper or plugwrap markets, where nobody is willing to pay more money for developments in products.”
Supply security, high- and tight-quality parameters, as well as tailor-made solutions and the ability to develop market-ready innovations are key to meeting today’s requirements, according to Delfortgroup. With its product portfolio of tipping base, cigarette paper, plugwrap paper and innerliner base paper—which the company will offer from May 2017—the company says it is a one-stop shop. Delfortgroup works from three mills and five paper machines, with which it claims it makes more than sufficient tipping base paper capacity available. “In addition, we have a well-functioning and continuously tested contingency concept in place,” Zahlbruckner points out. “Due to harmonized operating and quality-management systems, all paper grades can be instantly and expertly switched between paper machines within all sites of the group while maintaining identical quality parameters and standards.”
A number of factors have lately impacted the tipping base paper segment, such as the growth of the super-slim category. Super-slim cigarettes are increasingly popular in Russia, Korea, Greece and China. “This means smaller-circumference cigarettes and therefore utilization of less surface area of paper,” observes Alex Boone, business development director of global papers at U.S.-based Schweitzer-Mauduit International (SWM), the world’s largest producer of cigarette paper.
Another recent development has been more of a driver: The growing popularity of flavor-capsule filter cigarettes has led to increasing demand for base tipping solutions for oil resistance. Mudanjiang Hengfeng Paper Group, a cigarette-related paper producer based in northeastern China, offers a solution in this field.
Natural tipping paper and improved biodegradability also increasingly play a role. As early as 2008, Delfortgroup launched a tipping base paper with tobacco particles and unbleached pulp. Glatz offers a range of unbleached papers for almost all tipping base paper specifications.
Regulation drives business
Increasing regulation of tobacco products continues to affect the tipping base paper market. “Good stewardship practices and regulation has and can continue to drive the limitations on the types of chemistries that are allowable in the production of base tipping paper as well as printing. This can drive costs higher and make paper less ‘printer friendly,’” says Boone. However, he continues, “high-quality printing is a must so base papers with high opacity and brightness, as well as high smoothness, are required, which are technical benefits of SWM papers.”
Regulation is not all bad for tipping base paper suppliers, though. Omar Rahmanadi, CEO at BMJ, an Indonesian manufacturer of specialty paper and packaging for the tobacco industry, predicts a bright future for the segment. “In light of the development of cigarette alternatives and tighter anti-smoking regulations, the demand for high-quality tipping paper will grow in coming years,” he says. “With conventional cigarettes, tighter anti-smoking regulations such as plain packaging and oversized graphical health warnings have forced cigarette companies to rely on the cigarette stick itself for brand communication. That is why tipping paper will get more attention from brand owners.” According to Rahmanadi, cigarette companies are now looking for tipping paper with higher smoothness for better printability and lower grammage for cost saving.
For Delfortgroup, the revised European Tobacco Products Directive, which came into force last year, has been a driver of innovation because it requires brand owners to identify communication and product design tools even more carefully, explains Christoph Wachter, head of the tipping base paper business unit and general manager of Delfortgroup’s subsidiary Dr. Franz Feurstein. “Tipping base paper with a superior surface enables the converter to print recognizable, distinctive and sophisticated designs on it, which is one of the very few branding instruments in cigarette packaging,” he says.
Among the company’s recent developments is a sparkling tipping base paper, the glittering effect of which provides a high-end look and feel, making it the paper of choice for the premium segment with high differentiation, Delfortgroup claims.
Furthermore, the high demand for a “touch” experience has led the company to develop a textured tipping base paper with a special substance. “The special fiber composition and bulk of tipping base paper provides an excellent base for embossing off-line at the converter or online at the cigarette maker,” Wachter explains.
The Chinese factor
China, the world’s largest market for cigarettes, has experienced stricter smoking regulations since 2013 and a significant tax hike in 2015. Chinese cigarette volumes have declined accordingly. In 2015, consumption declined by 60 billion sticks, or 1.8 percent, to a retail volume of 2,489.5 billion sticks compared with the previous year, according to Euromonitor International. Declining tar levels in China, too, have affected the market for tipping paper. “One way to reduce tar is to increase tipping length,” explains Boone. “As such, use of tipping paper has increased over time.”
He says that while filter increase is one way, another is to increase use of natural ventilation with porous plugwrap and pre-perforated tipping. “This would not necessarily change the sales of base tipping but would be a form of value-added paper provided by tipping converters,” says Boone.
Hengfeng, meanwhile, has developed a tipping base paper with natural porosity, which, it claims, provides a better ventilation rate stability and standard deviation than perforated tipping paper. Tar and carbonmonoxide can be decreased by more than 50 percent, while hydrocyanic acid, phenols and nitrosamines can be removed, the company says.