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Business

Global players keen to boost heated tobacco production

Popularity in Japan prompts makers to push alternative devices using real leaf

Philip Morris International is investing roughly $320 million in a new factory for its IQOS.

TOKYO -- Amid the growing awareness of the risks associated with smoking, demand for smoke-free, alternative cigarettes is on the rise. While electronic cigarettes using liquid nicotine have been the most popular choice among the next-generation tobacco products hitting the market in Western countries and elsewhere, global tobacco companies are keen to enhance production of heated cigarettes using real tobacco leaf.

The move appears to be encouraged by the success of the product in Japan, which was once known as a smoker's paradise.

Philip Morris International is investing roughly $320 million in a new factory for its iQOS heated cigarettes in eastern Germany, slated for full operations in early 2019. The company plans another factory in Greece, in addition to existing locations in Italy and Switzerland. Altogether, total output capacity for smoke-free tobacco will be doubled to 100 billion cigarettes a year by the end of 2018.

Philip Morris has been a pioneer in heated tobacco products. It sells such products in about 25 countries, including Japan, Russia and Germany. The company's market share, including traditional rolled tobacco, is more than 10% in Japan. With the planned production enhancement, the company aims to raise its profile in other parts of the world, too.

British American Tobacco, meanwhile, has launched a plant worth nearly $200 million in the southern coastal city of Sacheon, South Korea. This is the second location after one in Russia for producing its glo heated cigarettes.

The company expects to roll out 40 billion cigarettes a year although the South Korean site will also produce some combustible rolled cigarettes. The glo made its debut in Japan in December last year, exclusively in Sendai, Miyagi Prefecture. Starting this month, the product is available in Tokyo and Osaka as well, and the company aims to reach other locations across the country.

The tobacco producer is also keen to sell heated tobacco globally. It began selling glo cigarettes in Switzerland in April and in Canada in May, with the goal of expanding the coverage to 20 countries or so by the end of 2018.

Japan Tobacco is investing a total 50 billion yen ($450 million) for production enhancement of its Ploom Tech heated tobacco in China and Japan. The product employs a capsule filled with tobacco leaf, while rival products IQOS and glo use a stick type of tobacco cartridge that is inserted into a heating device. The Japanese company makes the heating device in China and tobacco capsules in Japan. These new facilities will allow the company to produce heated cigarettes equivalent to 20 billion rolled cigarettes annually by the end of 2018. JT has just begun selling the Ploom Tech in Switzerland, and plans to roll out the product in other countries, too.

Unique market

Behind the tobacco companies' enthusiasm to upgrade their capacities for heated tobacco production is the success of the specific type of smoke-free cigarettes in the Japanese market. According to London-based research company Euromonitor International, the market for heated tobacco products in Japan is expected to grow to some $8.7 billion by 2021, up 4.2 times compared to the 2016 level.

Outside of Japan, the global trend of alternative cigarettes has been focused on electric cigarettes, or e-cigarettes. But the product using nicotine liquid instead of real tobacco leaf is categorized as a medical product in Japan, and is rarely found in shops. While pushing heated cigarettes, global tobacco players will likely seek to balance both types of the next-generation cigarettes in their sales strategies.

(Nikkei)

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