Stricter rules for tobacco products mean new opportunities for manufacturers of acetate tow and special cigarette filters.
By Stefanie Rossel
When the world’s leading privately held cigarette manufacturer, Philip Morris International, calls for a smoke-free future, you know the outlook for conventional cigarettes is uncertain. In light of ever more stringent restrictions on smoking, increasing taxation and growing competition from cigarette alternatives, such as vapor devices, smoking prevalence in many markets has been falling.
After years of declining cigarette volumes in the U.S., Western Europe and Japan, 2015 marked another watershed: For the first time in 15 years, tobacco sales dropped even in China, which until then had been the world’s top growth market, making up for losses elsewhere. Unsurprisingly, the ongoing deterioration of cigarette sales has also impacted demand for cigarette components, among them acetate tow for filters.
According to IHS Markit, world consumption of cellulose acetate filter tow decreased between 2011 and 2016. “The industry utilization for acetate tow has moved down to around 80–85 percent due to a combination of demand drivers, inventory adjustments and new capacity coming online,” says Scott Ballard, vice president and general manager of the fibers business segment at Eastman, a global specialty chemical company based in the U.S.
“Utilization had been at high levels for an extended period of time, and the downward turn happened a bit faster than expected due to the convergence of these multiple factors at once.”
For many years, demand for filtered cigarettes was fueled by requirements for lower tar levels, which led to longer and denser filters, according to Perry Aliotti, vice president of global sales of cellulose derivatives at Celanese.
“Those trends have now peaked, and the China growth engine has begun what we believe will be a slow and steady decline, similar to [that in] the U.S. and Western Europe,” he says. “This demand shift, coupled with the addition of tow capacity in China, has reduced the tow-utilization percentage, despite idling of several assets.” In the coming years, Aliotti expects China’s demand for tow to decline at an annual rate of 1–2 percent. Demand in the rest of the world, he predicts, will drop by 3–4 percent per year.
Ballard points out that the development of the Chinese market has been harder to predict than that of other countries. “China tow purchases certainly moved down due to a more complex set of factors,” he says. “Positive population and filter-specification trends were offset by the typical erosion drivers you see in the rest of the world, as well as some factors unique to China, such as austerity measures and a substantial buildup of tow and cigarette inventory. After some of the drivers that are one-time events get behind us, we’ll get a better estimate of the longer-term trajectory in China.”
The Chinese market situation has also impacted demand for specialty filters. In November 2016, Essentra, a leading manufacturer of cigarette filters, cautioned investors that profit that year would be below expectations, partly due to weak Chinese demand. Patrick Meredith, Essentra’s innovation director, remains confident, though. “Though global demand for filters declined in 2016 due, in part, to de-stocking activity in China, we believe the market for specialty cigarette filters remains an opportunity.”
Adjusting to lower demand, Eastman in 2015 closed its Workington, U.K., acetate tow factory, which had An annual capacity of 24,000 metric tons. In June 2016, the company sold its share in Primester, a cellulose acetate flake joint venture in Kingsport, Tennessee, USA, to its partner, Solvay, an international chemical and advanced materials company headquartered in Brussels.
“After Eastman’s closure of the Workington plant and the sale of our interest of our acetate flake [joint venture], we are now at the appropriate balance between acetate flake and tow spinning,” says Ballard. “Due to the integration of our remaining assets into our Kingsport site, we really have no good options to further reduce capacity. Eastman’s strategy is to leverage our competency in cellulosics to develop a diverse set of applications to gradually offset the annual declines expected in the cigarette market. We look forward to being able to talk publicly about some of those very soon.”
Ballard stresses that it is vital to work with customers to understand the evolving environment. Suppliers, he says, must be prepared to support their client’s strategies and meet their requirements. “Most of our new tow specifications are driven by the specific needs of specific customers and less about broad market trends,” he says. “More broadly, we continue to see market interest in tow items that support slim and super-slim cigarette brands.” Despite the challenges, Ballard expects acetate tow to remain an important and attractive base business.
Indeed, despite the current slump related to shrinking cigarette consumption, the filter and tow sector still holds a lot of potential, thanks in part to increasingly rigid regulation. “Barring a big surprise like a reduction of bidi popularity in India or an increase in female smoking rates in Asia, we see opportunities coming mostly from changes in regulations,” says Aliotti. “Longer filters to control tar are always on the agenda. Novel filters that selectively remove one or more constituents of concern are a real possibility. Even the new heat-not-burn technology utilizes some filter material, but may require very unique specification changes to deliver the taste they’re seeking.”
Ever-stricter limitations on the marketing and packaging of tobacco products have left the cigarette in many markets as the last medium for tobacco manufacturers to differentiate their brands. As a result, filters are increasingly in the limelight, sporting special properties, shapes or tow colors.
“Filters are the first impression a consumer has when opening a pack,” says Aliotti. “Thus, filter quality, new technology, unique appearance and innovation are all means to communicate a message to the consumer. The market growth of hollow tube filters, which require heavier specialty tow items, is a great example. Although Celanese does not produce finished filters, we are partnering with machinery makers to understand the interaction between our tow specifications and the firmness and efficiency requirements of the equipment. From that work have come several new tow item offerings to meet the industry needs.”
“As stricter regulation is enforced, specialty filters will be ever more important as a point of brand differentiation,” confirms Meredith. “While there are clearly challenges to be overcome, we believe the strength in the specialty filter segments, such as tube and capsule filters, provides a strong basis for optimism. Through engaging in constant research and working closely with our partners on innovation and development, Essentra will continue to ensure that it remains market-relevant and provides the products and services our customers and the end consumers really want.”
The implementation of the revised EU Tobacco Products Directive in May 2016, along with the imminent introduction of plain packaging in the United Kingdom, France and Ireland, has prompted Essentra and other companies to explore new opportunities for product differentiation through specialty filters.
“Essentra has an extensive portfolio of specialty filters, ranging from colored and shaped cellulose acetate threads to filters with one or two capsules for added flavors,” says Meredith. “In particular, we have seen a rise in popularity for both our tube segment and capsule filters due to the consumer interaction they allow, either through the visual cue provided or the customization opportunity the capsule can provide.”
The company’s most recent innovation is in line with that trend: The TwinSense dual-segment filter has capsules in both segments.
Another trend that requires a high level of expertise in tow manufacture is the rise of slim and super-slim cigarettes, which have become popular especially in Asia, Africa and the Middle East. “Demand for super-slim and even micro-slim tow items is booming,” says Aliotti. “Leading consumer markets like Korea, Japan and Russia are now being joined by China and many other Asian countries.”
In the 1980s, Celanese pioneered the development of super-slim tow for a Brown & Williamson brand called Capri. “During the research phase, we produced a standard-weight tow band then split it during rod making, using half and throwing half away,” says Aliotti. “We’ve come a long way from that period in our history.”
In 2016, Celanese patented its technology in ultra-high fiber-size, ultra-low total-weight tow items. “We now are offering a myriad of new tows customized to consumer needs for easy airflow and minimal filtration in these small cigarettes,” says Aliotti. “Our technical and manufacturing teams have also made large strides in the uniformity of these products and in their ability to process at high speeds.”
While the trend toward slimmer filters is believed to continue in many markets, simply slim sometimes doesn’t appear to be enough, as Meredith observes. “We are already seeing some markets introduce visually different, slimmer filters that incorporate a capsule as the manufacturers continue to push the boundaries of what can be possible to make their products stand out,” he says.
The acetate tow industry also benefits from the rising popularity of filter-capsule cigarettes. While still dwarfed by overall global cigarette consumption, which stood at 5.6 trillion sticks in 2015, according to Euromonitor data, the niche is growing quickly. In 2015, worldwide sales of filter capsule cigarettes accounted for 64 billion sticks, more than four times the volume in 2011. “Capsule filters place a different set of requirements on tow item selection,” explains Aliotti. “In these structures, tow must make room for the capsule to be firmly centered in the filter, but must still leave a path of easy airflow. Again, Celanese is offering new lower-pressure-drop tow items to meet industry needs. Overall, our portfolio of items has expanded significantly in recent years and will continue to do so.”