China vapor product export growth slows, substitution pressure on tobacco companies expected to ease

Overview

This report is a global tobacco industry tracking report published by UBS Global Research on June 22, 2026, with a core focus on changes in China's vapor product exports through May 2026. The report uses China customs data to monitor progress in the vapor category and believes that most vapor products are still manufactured in China, so export data can serve as an important indicator of global vapor category conditions.

Core views

UBS's core view is that vapor product growth is slowing, which will ease its negative substitution effect on traditional tobacco volumes. UBS's tobacco transformation model estimated vapor volume growth of about 20% in 2025, while retail sales value was roughly flat at US$38 billion; UBS currently expects global vapor volume growth of 11% in 2026. Regionally, U.S. weakness is the main drag on the global export slowdown, while Europe ex-UK and Asia are still posting double-digit declines and the UK remains in growth.

Analysis framework

The report is based on China customs export data, uses kilograms as the unit of measurement, and adopts a six-month moving average to smooth inventory fluctuations. The analysis is broken down into Global, U.S., Europe ex-UK, UK, and Asia, comparing May 2026 with previous months and FY2025 on a year-over-year basis. The report also combines factors such as U.S. inventory replenishment, the enforcement environment, changes in shipping methods, semi-finished product exports, and local filling to explain regional differences.

Methodology notes

• Data TrackingChina Customs Vapor Product Export Tracking

  Use China's export kilograms to observe global vapor product shipment trends

  Since most vapor products are manufactured in China, China customs export data can help monitor category growth, but this indicator is not a complete measure of consumption.

• Statistical SmoothingSix-Month Moving Average

  Use a six-month moving average to reduce inventory-related noise

  UBS uses a six-month moving average to smooth the impact of inventory restocking and destocking on monthly export data.

• Valuation MethodComparable Multiple Method

  Target price valuation framework for tobacco companies

  UBS states that it uses a multiple-based method to set target prices for covered tobacco companies, referencing factors such as volume changes, organic sales growth, organizational changes, tobacco transformation, balance sheet leverage, and relative valuation.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Global tobacco companies (BAT, IMB, JT, MO, PMI)

  Slowing vapor product growth may ease substitution pressure on traditional tobacco volumes and nicotine product portfolios.

  Strengths

  Traditional tobacco companies may benefit from reduced substitution pressure, and their valuation framework can be assessed together with volumes, organic growth, tobacco transformation, and leverage levels.

  Weaknesses

  They still face uncertainty from changes in consumer preferences, regulation and tax policy, competitive intensity, and execution capability.

  Comparison

  Compared with vapor volume growth of about 20% in 2025, UBS expects 2026 global vapor volume growth to slow to 11%.

  Risks

  Regulatory changes, the macro and interest rate environment, customer or supplier relationships, commodity costs and FX volatility, R&D and sales execution, M&A, and cash distribution.

• Vapor product manufacturing and export chain

  China export data is a proxy indicator for tracking the health of the global vapor category.

  Strengths

  China still represents a high share of manufacturing, and monthly customs data helps provide timely visibility into category changes.

  Weaknesses

  Kilogram-based measurement may understate consumption growth, some products may be classified under other export descriptions, and some production is also shifting overseas.

  Comparison

  The U.S. turned from +0.5% in April to -14.2% in May, while Asia remained in a double-digit decline at -24.9%.

  Risks

  Stricter enforcement, a shift in shipping methods from air to sea, semi-finished product exports followed by final filling in the U.S., and adjustments to brand names or product classification codes.

Key data

• Report Date2026-06-22Published by UBS Global Research.
• Global Vapor Product Export Volume-7.0%Six-month moving average year over year in May 2026; April was -2.2%, March was +6.9%, and February was +7.6%.
• U.S. Vapor Product Export Volume-14.2%Six-month moving average year over year in May 2026; April was +0.5%, March was +25.1%, and February was +36.5%.
• U.S. Market Weight约35%Refers to the U.S. share of global vapor product retail sales value.
• Europe ex-UK Export Volume-15.8%Six-month moving average year over year in May 2026; this region accounted for about 15% of exports in FY2025.
• UK Export Volume+8.8%Year over year in May 2026; April was +11.9%, March was +5.2%, and February was -1.5%.
• Asia Export Volume-24.9%Six-month moving average year over year in May 2026; this region accounted for about 15% of exports in FY2025.
• 2025 Vapor Volume Growth Estimate约+20%Estimated by UBS's tobacco transformation model; vapor products account for about 10% of total nicotine consumption, while retail sales value was roughly flat at US$38 billion.
• 2026 Global Vapor Volume Outlook+11%UBS's current expectation for full-year global vapor volume growth.

Impact & implications

In terms of investment implications, slowing vapor product growth helps ease the substitution pressure faced by traditional tobacco companies, especially when U.S. exports shift from positive growth to negative growth, which may lead the market to reassess the speed at which the vapor category is eroding tobacco volumes. However, export kilograms may understate actual consumption growth driven by larger-capacity disposable products; some products may also be exported under other descriptions such as batteries or electronic products, and overseas capacity migration to places such as Southeast Asia will reduce the completeness of China's export data.

Risks

• Government regulation, taxation, sales restrictions, or substitute-product policies for tobacco and vapor products may change materially.
• Changes in consumer preferences may affect relative demand for traditional tobacco and vapor products.
• Changes in the macroeconomy, interest rates, and credit conditions may affect the performance of key markets for covered companies.
• Competitive intensity among tobacco companies, as well as customer and supplier relationships, may affect margins and volumes.
• Commodity costs and foreign exchange volatility may affect profitability.
• Company execution in R&D, sales and marketing, productivity improvement, M&A, dividends, and buybacks may fall short of expectations.
• At the data level, there is a risk of understatement or omission due to kilogram-based measurement, export classification, and overseas capacity migration.

What to watch

• Whether the global six-month moving average export volume continues to decline in the coming months, or stabilizes after U.S. inventory digestion.
• Changes in sell-through growth, inventory levels, and enforcement intensity for vapor products in the U.S.
• Whether private vapor companies continue shifting toward sea freight, semi-finished product exports, and local filling in the U.S.
• Whether the divergence within Europe ex-UK between declines in the Netherlands and growth in France and Italy continues.
• The impact of low-priced cigarettes, high smoking rates, and local capacity migration in Asia on vapor product adoption.
• Whether UBS's +11% 2026 global vapor volume growth forecast needs to be revised down further as export data continues to weaken.