Trends and Developments in the Chinese Pulp and Paper Industry
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Trends and Developments in the Chinese Pulp and Paper Industry International Forum on Investment and Finance in China’s Forestry Sector September 22-23, 2004, Beijing, China Ilkka Kuusisto Associate Principal Jaakko Pöyry Consulting, Shanghai Agenda Paper and paperboard Will the growth continue? consumption Production and capacity Where will the production be additions located and who will operate it? Future fibre supply Is there enough fibre? Where will it come from? 2 Global Consulting and Engineering Group Client- and technology-oriented globally operating consulting and engineering firm Core operations based on three know-how clusters: 1. forest industry 2. energy, and 3. infrastructure & environment Global market leader in forest industry Strong international position 3 Paper and paperboard Will the growth continue? consumption Production and capacity additions Future fibre supply 4 Global Paper and Board Consumption Over the past 23 years, global paper and paperboard consumption has grown 3.0% a year or a total of 165 million tons. Million tons 350 + 3.1 %/a Rest of World 300 + 3.4 %/a Non-Japan Asia 250 Japan 200 150 Europe 100 50 North America 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 5 Co-existence of Media Historically, electronic media has not threatened the growth of paper based communication – in many cases the paper industry has benefited from it. - Paper consumption, million t/a - 40 40 Newsprint and pr/wr paper Expansion of consumption in Western Europe Internet/WWW CD-ROMs 30 Laser Printers 30 Satellite PCs TV Cable TV 20 20 Mini VCR Colour Computers TV Printing and writing papers 10 Mainframe 10 Computers Radio Cinema Newsprint TV 0 0 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 6 103TTS01 Innovations and Paper-based Packaging Paper remains a very competitive packaging material. New innovations and applications help maintain its position against other materials and systems. - Consumption, million t/a - 200 Smart packaging Digital printing 150 Non-impact printing Microflutes Lightweighting 100 Barrier technology Aseptic liquid packaging 50 World consumption of packaging paper and board 0 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 7 103TTS01 GDP Growth by Region …and the rapid economic growth in Asia will underpin the growth in paper consumption. Japan Asia (excl. Japan and China) China 1997 1.6 1997 4.4 1997 8.8 1998 0 1998 0.4 1998 7.8 1999 0.8 1999 5.9 1999 7.1 2000 2.8 2000 5.3 2000 8.0 2001 0.4 2001 3.8 2001 7.3 2002 0.2 2002 4.4 2002 8.0 2003 2.5 2003 5.9 2003 9.1 2004 4.2 2004 5.8 2004 8.3 2005 1.8 2005 5.6 2005 7.7 2006 1.9 2006 5.5 2006 7.6 2007 1.8 2007 5.5 2007 7.0 2008 2.1 2008 5.7 2008 7.3 L-t trend 1.3 L-t trend 5.4 L-t trend 7.7 02468 02468 0246810 % change in GDP Source: Consensus Forecasts and OECD 8 World Demand for Paper and Paperboard World demand for paper and paperboard continues to grow. With an average growth rate of 2.2 percents a year, it will reach 450 million tons by the year 2015. Million tons 500 Forecast Rest of the World 400 Latin America Rest of Asia 300 China Japan 200 Eastern Europe Western Europe 100 0 North America 1980 1985 1990 1995 2000 2005 2010 2015 9 Growth of Paper and Paperboard Demand Most of the growth will take place in more volatile emerging markets. Demand growth %/a Emerging Growth 5 Eastern Europe Markets China Asia excl. 4 Japan & China Latin America 3 Africa Average 2.2 %/a 2 Oceania Western Europe Traditional Strongholds Japan 1 North America 0 0 20406080100 Share of consumption in 2000 (325 million tons), % 10 Growth of Paper and Paperboard Demand Woodfree papers and tissue show highest growth rates, packaging boards account for substantial volume growth. Demand growth %/a 4 Coated Uncoated woodfree woodfree Tissue Average 2.2%/a 3 Corrugating materials Coated mechanical Cartonboards Uncoated 2 mechanical Newsprint 1 Sack paper Other grades 0 0 20 40 60 80 100 Share of consumption in 2000, % 11 Paper and paperboard consumption Production and capacity Where will the production be additions located and who will operate it? Future fibre supply 12 Consolidation and Globalization Search for markets, assets and competitive advantage drive consolidation and globalization Trade policy & Market growth legislation Search for Search for improved new markets efficiency & growth Globalization of Resource availability customers Search for strategic assets & capabilities Regional cost Competitive pressure advantages 13 Leading Global Paper and Paperboard Producers Truly global companies are yet to emerge but many companies have by now established Asian presence. Regional Capacity Distribution, 2004/IIQ Stora Enso International Paper UPM Oji Georgia-Pacific Weyerhaeuser Nippon Unipac Holding Smurfit-Stone Container Abitibi-Consolidated SCA North America M-real Western Europe Asia Pulp & Paper Eastern Europe Norske Skog Latin America MeadWestvaco Asia Other Mondi 0 2000 4000 6000 8000 10000 12000 14000 16000 18000 - Capacity, 1000 t/a - 14 Paper Industry Concentration 1997 vs. 2002 The pulp and paper industry is still relatively fragmented with top five firms controlling only 20-40% of regional capacity. Combined capacity share of top five firms (%) 60 1997 2002 40 20 0 North Western Asia Latin World America Europe America 15 Industry-level Benefits of Consolidation Consolidation helps to bring price stability. Price volatility vs. industry concentration - Standard deviation, % - 16 Global price, regional concentration for pulp 14 BHKP 12 Testliner BSKP 10 Uncoated Kraftliner 8 woodfree 6 Newsprint LWC 4 SC 2 0 20 40 60 80 100 - Concentration of Top 5, % - 16 Changes in Investment Conduct The past 10 years has been a decade of acquisitions. - Investment spend, % of sales - 25 % 20 % 15 % 12.3% 10 % 2.4% 20.7% 1.8% 1.5% 11.2% 5 % 7.0% 6.9% 0 % Total Acq. New Other Total Acq. New Other inv. lines capex inv. lines capex. 1991 - 1995 1996 - 2000 17 Acquisition and Investment Activity Consolidation has mainly taken place in developed, slow growing, mature markets. Asian companies are still growing through new investments. North America, Europe and Japan China and Rest of Asia Acquisitions Acquisitions 10 % 55 % 45 % 90 % Fixed Investments Fixed Investments Source: JP Research 18 Global Capacity Growth Non-Japan Asia’s share of global capacity investments has grown significantly 100 % Asia Rest of World 80 Japan China 60 Europe 40 20 North America 0 1970s 1980s 1990s 2001-2006 Source: JP Research 19 Capacity Expansion Projects in China Over the next five years, China will lead the world in capacity growth. Company Capacity 1000 t/a Grade Location Time APP Ningxing Zhonghua 700 Duplex board Zhejiang 2004 APP Hainan Jinhai Pulp 1000 Bl hardwood pulp Hainan 2005 APP Gold East Paper 700 Coated woodfree Jiangsu 2005/2006 APRIL 400 Uncoated woodfree Guangdong 2006/2007 APRIL 1000 Bl hardwood pulp Shandong n.a. Daewoo Paper 300 Coated woodfree Heilongjiang 2006 Dongguang Jia Hui (Sun) 300 Duplex board Guangdong June 2004 Dongguang Jia Hui (Sun) 300 Duplex board Guangdong August 2005 Foshan Huafeng 300 Duplex board Guangdong 2005 Hebei Pan Asia Long-Teng 330 Newsprint Hebei 2005 Jiangxi Chenming Paper 400 LWC Jiangxi 2004 Lee & Man Paper Mfg. 250 Unbl testliner Jiangsu 2004 Lee & Man Paper Mfg. 350 Recycled medium Jiangsu September 2004 Lee & Man Paper Mfg. 400 Testliner/medium Guangdong 2005 Nine Dragons 250 Recycled medium Guangdong August 2004 Nine Dragons 250 Recycled medium Guangdong August 2004 Nine Dragons 300 Unbl testliner Guangdong 2005 Ningxia Meili Paper Industry 300 Folding boxboard/duplex Ningxia 2005 Oji Paper 400 Coated woodfree Jiangsu 2006 Shandong Cheming 400 Folding boxboard Shandong 2005 Shandong Cheming Qihe 300 Recycled medium Shandong n.a. Shandong Huatai 450 Newsprint/LWC Shandong 2005 Shandong Jin Feng Yuan 450 Duplex board Shanghai/Fengxian n.a. Shanghai Zhonglong Paper 300 Testliner/medium Shanghai/Pudong 2004 StoraEnso Suzhou Paper 450 Coated woodfree Jiangsu n.a. UPM-Kymmene 450 Uncoated woodfree Jiangsu 2005 Wuhan Chenming 300 Cartonboard Hubei n.a. Wuxi Long Chen Paper 400 Testliner/medium Jiangsu 2007 Yuen Foong Yu Paper 500 Testliner/medium Jiangsu 2006 Yuen Foong Yu Paper 500 Testliner/medium n.a. n.a. Yueyang Paper 300 Folding boxboard Hunan n.a. Zhanjiang Wood Pulp Mill 700 Bl hardwood pulp Guangdong n.a. TOTAL ABOVE 13730 20 Paper and paperboard consumption Production and capacity additions Is there enough fibre? Future fibre supply Where will it come from? 21 Global Consumption of Papermaking Fibre World consumption of papermaking fibre is forecast to grow from 350 million tons in 2003 to 460 million tons by the year 2015, or 2.3%/a on average. Million tons 500 Forecast 400 300 Recovered paper Non-wood pulps 200 Sulphite pulps UKP BHKP 100 BSKP Mechanical/semichemical 0 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 22 Average Papermaking Fibre Furnish in the World Wood pulp is still the most important papermaking raw material, but recovered paper continuously increases its share of the total – today about 48% of the total Percent 100% Forecast 90% Recovered paper 80% Non-wood pulps 70% Sulphite pulps 60% 50% UKP 40% BHKP 30% BSKP 20% 10% Mechanical/semichemical 0% 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 23 Recovered Paper Collection and Consumption – 2003 North America is the great provider of recovered paper for Asia. Million tons 50 58% 50% 9.3 6.9 4.1 45 2.0 2.7 40 0.7 1.5 35 40% 0.4 30 25 65% 20 Recovery rate 15 Consumption Collection 10 5 0 Western Europe North America Non-Japan Asia Japan New Capacity in China 11 million tons of new papermaking capacity came on stream in China during the past three years.