Pulp&Paper investments to accelerate anew in China
I have recently been talking to several suppliers and producers in the pulp and paper industry in Asia, and the good news is that it looks as if the Chinese pulp and paper market is on a fast expansion track again. There are new projects, big and small, signed or under discussion again in the recent months, after a quiet period since late last year.
Recent news shows that the big players are setting the trend, with Shandong Chenming Paper's confirmed vast expansion plans in pulp, fine paper, liner board and tissue at its greenfield and brownfield mills. In addition, Shandong Huatai has just ordered a 800,000 tonnes/yr machine scheduled for startup in December 2010.
APP has obviously made a comeback in China too, with resumed construction work for a new 1 million tonne/yr fine paper machine, PM 2, in Hainan. Various sources also reveal that other of APP's delayed projects have restarted construction too.
On the other hand, smaller players are also in discussions for new projects, in almost all paper grades. Meanwhile, the industry's production rate has increased and is becoming more profitable, according to a recent report by SYWG Research and Consulting.
Some industry insiders attribute the new wave of expansion in the pulp and paper industry in China to the government's economic stimulus packages and modestly loosened monetary policies. The policies were launched at the end of 2008 with an aim to lift domestic demand amid the world financial crisis and a slowing domestic economy.
"It is getting easier for paper producers to get loans from the bank," says one supplier.
In addition, companies can also benefit from the nationwide adoption of "VAT Transformation", starting from January 1 this year. The reform is a major tax cutting policy with an aim "to reduce the tax burden for investment in capital equipment, to increase the demand in the domestic market, to promote technological advancement, and to adjust the industry structure and the transformation pattern of economic growth", according to the official website of the State Administration of Taxation.
"It is worthwhile to invest now in new projects as the cost is lower compared to the past," said Li Hongxin, chairman of Sun Paper at the Fourth China Pulp and Paper Outlook Conference in Xiamen in April this year. Sun Paper ordered PM 23, a 350,000 tonne/yr uncoated fine paper machine, for its mill in Yanzhou city, Shandong province early this year. Startup is scheduled for the first quarter of 2010.
What's more, for some paper companies, especially the big ones, expanding capacity in different paper grades, or "to put eggs in different baskets", in order to minimize risks when the economy is turbulent has been on the agenda. For example, Shandong Chenming opted to tap into the tissue business, while the country's biggest newsprint producer Shandong Huatai went into fine paper production.
But still, securing forest and pulp resources is the key issue for the companies, as China heavily relies on pulp imports due to limited resources domestically.
"Our company has developed 600,000 mu (40,000 ha) of forest in Zhanjiang and 1.02 million mu (68,000 ha) of forest in Hubei. And for the next stage, we will further accelerate the construction of the raw materials base and try our best to create an integrated industrial chain of forestation, pulp and paper," says Chen Hongguo, Shandong Chenming's chairman, at a recent interview with PPI.
Furthermore, China aims to shut down 6.5 million tonnes (or even more) of polluted and outdated small mills by then end of 2010. Bigger players regard this as a good reason to expand and fill in the gap.
Last but not least, the new wave of investment shows that confidence has been restored and industry leaders show an optimistic outlook for the future in the country.
"It normally takes 14-16 months to build a new line, and it might take longer for some bigger lines, so most companies think the industry is looking good in 2010 and onwards," says one supplier.
"The Chinese economy appears to be recovering and may be the first major economy to be past the trough of this recession...Our conclusions are that China will be able to maintain positive, but unspectacular, growth of 7-8.5% in 2009-2010, but will not accelerate further until the US economy and other important sources of demand for Chinese exports recover fully," says RISI's Asian Pulp and Paper Monitor, June 2009.
However, not everyone expects the future will be rosy and some think it might just be a mirage. Some people believe that it might be an irrational boom, as the country's stock market and housing market goes crazy again this year. Others worry that more recent investment in some paper sectors, like containerboard, might not be wise under oversupply concerns.
"Anyway, in the end, the market will adjust itself and there's no need to worry," said Zhao Wei, secretary general of the China Paper Association at the recently held "2009 Paper Industry Sustainability Forum: Paper Contract with China" in Suzhou
Issued by: RISI News
Author: Annie Zhu, Associate Editor, Pulp & Paper International magazine
Issue date: July 3, 2009
Link to Article: Origin of this text