In China, environmental change we can believe in?

BEDFORD, MA, Jän. 18, 2010 (RISI) - Actual consumption of wood pulp in China remains on a robust upward trend. Consumption surged in 2009, for which we estimate demand rose by just over 19%, due to rising paper consumption and exports, inventory rebuilding in both pulp and paper, and a sharp decline in nonwood pulp production within China.

Wood pulp consumption in China is rising in both absolute volumes and as a percentage of the fiber furnish. Wood pulp consumption in 2009 is estimated to have been 24% of paper and board production, compared to 50% for the rest of the world, which indicates that there is still considerable upside growth potential for wood pulp in China. The upward trend in the share of wood pulp in the fiber furnish is in part due to rising quality standards of the final paper and board products, as there is a trend over time of using less nonwood pulp in printing and writing (P&W) papers and somewhat less recovered paper in tissue papers. Closures of nonwood pulp mills in China for environmental reasons are also accelerating the gains in wood pulp consumption.

The closures of nonwood mills accelerated in 2009 in part because of a policy decision by the agency of the national government that is overseeing the process of closing down "backward" pulp and paper capacity. In May, the National Development and Reform Commission (NDRC) announced changes to its five-year plan that, effective immediately, required the closure of an additional 1.0 million tonnes of small and polluting pulp and paper capacity by 2011, bringing the new total closure from 2009 to 2011 to at least 2.0 million tonnes. Most of these mills make or use straw (wheat or rice) pulp, used commonly in P&W papers, and the old and small straw pulp mills do not have adequate chemical recovery systems. It is important to note, however, that the closure figures announced by the NDRC are an unknown combination of pulp and paper capacity, so these numbers have to be used with caution in projecting nonwood pulp production.

What is clear, however, is that environmental performance standards for the pulp and paper industry are rising meaningfully in China. Authorities are more resolved to enforce existing regulations and enact new ones, and at both the national and local levels they are taking stronger steps than ever to crack down on high-emission mills. (This is also true for many other industries in China.) This is an important change and industry participants outside China need to take notice. More older capacity will be closed and it will be somewhat harder to permit new pulp mills, all of which will give a boost to pulp imports over time. There remain many questions about what the next five-year plan will bring regarding targets for nonwood mill closures. The NDRC five-year plans coincide with the national economic five-year plan. The 12th five-year plan (2011-2015) will be drafted in the second half of 2010 and finalized at the "Two Sessions" meetings in Beijing in March of 2011. More information on nonwood closures beyond 2011 is likely to be available later this year.