Reconstituted Tobacco Industry Spotlight by STI

//Reconstituted Tobacco Industry Spotlight by STI
  • Tobacco Blending Catalogue

STI manager Jason Hwang featured on Tobacco Journal International, and he shared insights about the future of reconstituted tobacco industry.

reconstituted tobacco industry

How did you get your start in the reconstituted tobacco industry and, later, come to be involved with Star Tobacco International (STI)?

I started my career in 1999 and, from the very beginning, have been mostly engaged in the field of international business. In 2010, I joined KT&G group’s reconstituted tobacco division as an overseas sales manager, and that was my start in the tobacco industry. I joined Star Tobacco International (STI) in May 2016.


What is your role at STI?

As part of the team at STI, I am responsible for the group’s operations in the reconstituted tobacco industry and Asian tobacco business.


STI is a global company. How does this impact your work?

Like other company employees, my daily routine starts with checking and replying to e-mails from clients and business associates.

Whenever there is an issue, I discuss it with my colleagues around the world via Messenger and get their feedback on my work. Due to the simultaneous nature of these communications, I feel very well connected to my colleagues and customers, even though my physical office is located in Korea, which is far from the group’s headquarters in Istanbul, Turkey. Face-to-face meetings are also an integral part of building these relationships, and I try to meet my colleagues around the world at least every two months or so.

Face-to-face meetings are also an integral part of building these relationships, and I try to meet my colleagues around the world at least every two months or so.


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Where are the company’s processing facilities?

STI sources its tobaccos from 25 countries on a ‘security of supply’ model. As such, it partners with grower cooperatives in South America, Southern Africa, China and Indonesia. When it comes to tobacco processing, the majority of this is done in Africa and South America – in Zimbabwe, Zambia, Kenya, Tanzania, Malawi, Rwanda, Argentina, and Brazil. But STI also has processing facilities in China and Indonesia.


What about warehousing?

STI selects the locations of its warehouses strategically to provide exclusive ‘just-in-time’ logistics and service. Our core warehouses are located in Antwerp, Belgium; Porto Alegre, Brazil; Durban, South Africa; Mersin in Turkey; Jember and Surabaya in Indonesia and Ho Chi Minh City, Vietnam.


What kinds of tobacco derivatives does STI offer?

When it comes to tobacco derivatives, such as expanded stems and reconstituted tobacco, STI is the most diversified reconstituted tobacco supplier.

We offer four different variants. These are paper-type reconstituted tobacco from China, Nano-fiber reconstituted tobacco from Brazil, homogenized reconstituted tobacco from Serbia and slurry-type reconstituted tobacco from Argentina.


Tell us about the size and prospects of the reconstituted tobacco market.

We estimate the annual global demand for reconstituted tobacco is currently around 270,000 to 300,000 tonnes. From this, about 40% is mainly allocated to China’s consumption needs. The total demand is increasing by about 3% every year.


Is oversupply still an issue?

There was a time of colossal acceleration, around 2010 and 2011, for the global reconstituted tobacco market. At this period, every player was too optimistic, I feel, when it came to the continued growth and prospective demand. Those optimistic views led to manufactures
overinvesting which has resulted in the current oversupply of reconstituted tobacco that we are currently still seeing.


What effect is this having on the market?

One of our competitors had planned to build a new factory in the Philippines but canceled the project due to incorrect market forecasts. Another new factory in China was completed in 2015 but still has free capacity. One company saw a drastic increase to around 3,000 tonnes per year, but volumes have since remained stagnant. Most of China’s new papermaking reconstituted tobacco factories were built between 2013 and 2017. This brought about 80,000 tonnes of additional production volume to the domestic market. The surplus in production became a big crisis for all the market players worldwide.


reconstituted tobacco composite

A figure of a reconstituted tobacco composite


What is STI’s strategy for weathering this?

The market players will face severe competition, initially, and the winner will enjoy the good times when the cycle evens out again. We see our role as merely trying to go around this congestion. Even though we are currently facing the oversupply, reconstituted tobacco is still the critical tobacco material for cost savings and producing a less harmful cigarette. So we are confident about seeing renewed demand. We have a lot of accumulated knowledge about the current market and production regarding reconstituted tobacco, and we are aggressively expanding this part of our business.

So we are confident about seeing renewed demand. We have a lot of accumulated knowledge about the current market and production regarding reconstituted tobacco, and we are aggressively expanding this part of our business.


Are there any regions already seeing renewed growth?

The European and US markets are still suffering from the stagnant growth, but we currently see more potential in Asia and Africa. In Asia, we are primarily focused on Indonesia as a prospective growth market. In Indonesia, domestic consumption of cigarettes is 380 billion sticks, making it the second largest market in the world after China.


How would consumption in Indonesia translate into demand for reconstituted tobacco?

380 billion sticks mean that over 300,000 tonnes of the leaf is consumed in Indonesia and we currently see reconstituted tobacco making up between 10 and 30% of blends. Assuming a target rate of 10% for reconstituted tobacco, that would translate to 30,000 tonnes, assuming all cigarettes are manufactured using at least some recon. Since this will not always be the case, and also taking into account that some blends use as much as 20% recon, we would tend to place the demand in Indonesia at between 25,000 and 27,000 tonnes per year. There are more than 100 companies in the tobacco industry in Indonesia, but only the biggest of them have their reconstituted tobacco facilities which are operated for internal usage. So there is indeed a market there.

Since this will not always be the case, and also taking into account that some blends use as much as 20% recon, we would tend to place the demand in Indonesia at between 25,000 and 27,000 tonnes per year. There are more than 100 companies in the tobacco industry in Indonesia, but only the biggest of them have their reconstituted tobacco facilities which are operated for internal usage. So there is indeed a market there.

There are more than 100 companies in the tobacco industry in Indonesia, but only the biggest of them have their reconstituted tobacco facilities which are operated for internal usage. So there is indeed a market there.


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Is STI already active in Indonesia?

As of June of this year, STI started to sell papermaking reconstituted tobacco in the Indonesian market, and our reconstituted tobacco was already tested and approved for the Indonesian market. Besides the conventional finished recon product, we are also preparing the customised recon., such as clove recon and toll processing recon, for Indonesia.

Besides the conventional finished recon product, we are also preparing the customised recon., such as clove recon and toll processing recon, for Indonesia.


To what extent do you work with clients to design solutions?

Our reconstituted tobacco is manufactured to the highest quality standards. These standards are then modified to fit and accommodate for the taste signature of the final producer. For instance, with the Tunisian Government Monopoly (RNTA), we won a three supply contract to deliver 3,000 tonnes of reconstituted tobacco by working closely with their blenders to design the perfect reconstituted tobacco for their flagship brand, Mars.

For instance, with the Tunisian Government Monopoly (RNTA), we won a three supply contract to deliver 3,000 tonnes of reconstituted tobacco by working closely with their blenders to design the perfect reconstituted tobacco for their flagship brand, Mars.


What kinds of quality control and measurements are essential when developing recon products and blends?

There are three levels of parameters to be established. The first is blend type. For example, should it be American blend, with Virginia and burley, or pure Virginia? To compensate for the declining oriental tobacco production, STI has developed an oriental recon product. The second step concerns chemical-related quality control and measurement. This means controlling nicotine levels, sugars, chlorine, etc. Then, there are the physical parameters. Here we look at weight, thickness, shape and moisture levels.

This means controlling nicotine levels, sugars, chlorine, etc. Then, there are the physical parameters. Here we look at weight, thickness, shape and moisture levels.


With crop outlooks reliant on factors such as weather events, how do you keep on top of crop expectations and purchasing?

As a responsible tobacco leaf merchant, we owe it to our clients to provide accurate crop information for all the essential origins, and to use that knowledge in the interest of the customer. This way, we can help our clients to stay ahead of the ‘cost curve’ by taking advantage of particular origins that have overproduced, versus origins that have underproduced.

This way, we can help our clients to stay ahead of the ‘cost curve’ by taking advantage of particular origins that have overproduced, versus origins that have underproduced.


To what extent can you keep on top of the elements?

It’s very tricky. As an example, STI established a Cigar Leaf division catering to cigar manufacturers in Europe and Central America, headed up by cigar leaf veteran, Maarten van Dijck. Up to 50% of all cigars are manufactured with Indonesian Besuki filler, binder, and wrapper. But in 2015, Indonesia’s Mount Aung erupted, destroying 80% of all cigar cultivations.

In 2016, the rains washed out three successive plantings reducing the crop size by 70%. With two dismal years in a row, farmers’ enthusiasm to grow Besuki has fallen sharply. We are advising all our cigar leaf clients to be bullish on the 2017 crop to avoid an out of stock position.


If you’re interested in the reconstituted tobacco industry and would like to know more about our products, please contact us to discuss how we can help you.

2018-07-08T20:22:22+00:00