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jouz 12/20 black, left, (both available jouz models feature the same exterior design). At right, jouz HNB devices have an attractively sleek pen-style design. Courtesy of jouz Limited
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An IUOC 2.0 device, left, displaying an inserted conventional cigarette. At right, Yukan Technology’s groundbreaking IUOC 2.0 device. Courtesy of Shenzhen Yukan Technology Co. Ltd. / IUOC
When a handful of Chinese companies showcased the first heat-not-burn (HNB) devices at international trade shows about a decade ago, they hardly raised any eyebrows. But, soon enough the multinationals picked up the cue. PMI poured years of research and considerable funds into developing its sophisticated IQOS, finally rolling it out in 2014. Less than two years later, both BAT and JTI launched their very own devices, glo and Ploom, respectively. The Chinese kept inventing as well, shelling out increasingly more refined HNB gadgets under a myriad of brand names. What initially had seemed little more than a technical gimmick that probably would fade away just as quickly as it had appeared instead gave birth to the entirely new category of “next generation products” (NGPs).
Recon, the perfect solution
Early devices were rather crude affairs incorporating a small heating chamber into which loose tobacco (or herbs) literally could be stuffed. IQOS, on the other hand, introduced “Heets”, ready-made, easily exchangeable cartridges patented by PMI. But the cartridge – or “heat stick” - concept also was adopted for JTI’s and BAT’s devices. And as it turned out, simply filling those cartridges with cut tobacco gave unsatisfactory results. The perfect solution was reconstituted tobacco sheet (“recon”), which due to its composition ensured much better heat distribution, thus reliably releasing tobacco vapors at below-combustion-point temperatures.
HNB devices have since become available in many markets, gathering increasingly strong followings among end consumers. One would therefore assume that this rising trend also ought to have called major recon manufacturers and traders onto stage, eager to take advantage of the rising demand. Yet, that does not seem to be the case – at least as far as some of Asia’s more prominent recon suppliers are concerned.
Pura Group: Manufacturing recon since 2013
PT. Pura Barutama Unit Paper Mill 10 is part of Indonesia’s Pura Group, a conglomerate deeply entrenched in the printing, papermaking, and hologram industries. The group also supplies tobacco companies with papers, foils, and other ancillary products. Previously primarily manufacturing cigarette papers, Unit Paper Mill 10 jumped on the recon bandwagon in 2013, when it opened its first slurry-type production line.
“There weren’t many [recon] producers around back then, so it was an excellent opportunity for us to secure a market share early on,” recalled the company’s director, Purnama Setiawan. Today, 90% of the plant’s annual output is recon, the remaining 10% being colored cigarette papers.
However, the product is exclusively utilized as wrappers and binders for cigarettes, cigarillos, and cigars, according to plant manager Aris Wicaksono.
“Our entire volume goes into conventional tobacco products and none of it is supplied to the HNB sector,” he said. This peculiar circumstance may of course have something to do with the fact that the company currently only is able to manufacture slurry-type recon “paper”. HNB cartridges, however, generally require cast-type recon.
“It’s more suitable for HNB purposes because it’s more pliable and more compatible with HNB sticks, as more glycerin can be added during the manufacturing process more,” explained company researcher, Hari Suciadi.
Investing in a cast-type line to snatch a slice of the HNB pie is not a viable option for the company at the moment. “We’d need to do more research into HNB and how to enter the market,” admitted Purnama Setiawan. “But as far as we know, the big [HNB device] companies that presently dominate the product segment all have contract suppliers who manufacture specific recon formulas for them. This makes it difficult for other factories to jump in.” Of course, that doesn’t mean that HNB is going to be off limits for the Indonesian company for all eternity. “HNB markets around the world are expanding, and if and when the opportune time arises we will surely consider whether an investment in cast-type machinery is going to be worthwhile,” Purnama Setiawan said
Star Agritech: Trading recon since 2014
Well-known Singapore-headquartered tobacco merchant Star Agritech International PTE Ltd. (SAI) first started trading recon in 2014, supplying tobacco monopolies in the region.
“There was a constant drive from governments back then to lower nicotine levels in combustible cigarettes,” the company’s business development manager, Murtaza Kanchwala, told Tobacco Asia. But, in good time SAI also acquired SME clients that were looking for cost-cutting opportunities in order to increase their returns. As a consequence, SAI’s recon business took off in such a way that the commodity today represents a full quarter of the company’s total annual trade volume. The company maintains its own recon manufacturing facilities in Brazil, Europe, and Indonesia.
But, HNB has so far remained a sector in which SAI has decided not to dabble. “In the first half of last year, the total market for HNB [re-fills] amounted to 33 billion sticks, but was thriving only in Japan, South Korea, Australia, and some western European countries,” remarked Kanchwala. He explained that compared to conventional combustibles HNB cartridges represented a much smaller pie. Furthermore, the market also was clearly dominated by multinational companies and their HNB products. “The economics are not there to justify a sizeable investment for entering the HNB market. HNB is not our focus and will not be for the foreseeable future.”
Jorge Kenji, SAI’s commercial director, commented that it was a matter of simple metrics that came into play. An individual market would have to turn over more than 12 billion HNB sticks for a single independent cigarette or HNB manufacturer to afford the investment cost of a cartridge production line. “The assets price tag is an entry barrier,” Kenji asserted. “From a CAPEX perspective, a manufacturer would have to rely on a turnover of 12,000 to 15,000 master cases equivalent per month to take any chances with HNB products.” He added that not only HNB devices themselves required cost-intensive r&d but that the same also held true for HNB-compatible recon.
At present, Kenji explained, SAI believed that “the HNB experience” still had to be improved for consumers. But, the company closely monitors trends “that go beyond the delivery of a physical bobbin of reconstituted tobacco” and was willing and ready to service the HNB market within a broader scope if it were approached by a manufacturer. “We offer wide expertise in various recon technologies to support the development of new products,” he pointed out.
Many supplier “shying away” from HNB
Meanwhile, Kenji’s colleague, Murtaza Kanchwala, hinted at patent issues that made recon suppliers shy away from entering the market. For instance, PMI’s “Heets” utilize a technology in which recon strips are crimped into the cartridge shell’s heating section.
“PMI has patented this process, which means that other manufacturers are barred from deploying it and need to find alternative methods of using recon in their sticks,” he explained. “The recon’s flash point must be altered if it is to generate the required smoke through being heated.” And even though SAI actually manufactures HNB-suitable recon at its facilities, the company solely resorts to supplying combustible product manufacturers only.
“In absolute terms, recon for combustibles represents vastly higher volumes than if we could possibly hope to sell to the HNB industry at present,” Kanchwala reasoned. And, things are actually looking good for SAI even without the HNB industry. For the current year, the company anticipates a turnover of approximately 5,000 tons of recon across all types.