The pulp-and-paper industry is undergoing major transformation. Closure, capacity reduction and ownership change in North American and Scandinavian (Norscan) mills are rampant. But investments flowing into China’s paper mills and forestry programs seem unstoppable. To get a better picture, PW sits down for a lengthy chat with two Hong Kong-based paper companies, Che San and Hing Tai Hong (HTH).
But first, a brief introduction. For paper merchant Che San, the oldest (established in 1898) and one of the biggest in town, riding the Chinese economic boom is a no-brainer. It has offices in China’s main manufacturing and commercial hubs—Beijing, Shanghai, Guangzhou and Shenzhen. “We pride ourselves not only on the volume of paper we distribute but also on our comprehensive network in Hong Kong, Macau and China. At the same time, our subsidiaries provide products such as printing inks and chemicals as well as services such as paper sheeting, rewinding, logistics, design, consultancy and print management,” says its general manager Simon Fung. About 75% of the papers and boards it sells are China-made. But it still distributes a large amount of Japanese printing papers for the re-export book printing market.
“We consider ourselves a service provider and not a traditional trading company that makes short-term gains from buying and selling low,” says executive director Quincy Lui of HTH, whose firm recently installed a new ERP system, Microsoft Navision. “Now that our Web site is linked with this system, clients can obtain real-time information on order status, stock availability, shipment dates, reserved inventory and so on.” Many multinational publishers printing in Hong Kong/China have outsourced their paper procurement to HTH, the only merchant in south China with the capability to sheet lightweight papers. It stocks grades as low as 31gsm and indents about 4,000 to 5,000 metric tons of rolling stock (making its market share relatively small compared to other merchants). “Our focus has always been on quality service and product development, and as a family-owned company we don’t have the pressure to increase market share.”
How does Norscan mill closure and capacity reduction affect you?
Simon Fung: The impact on lightweight and newsprint grades is obvious. We are no longer able to get any allocation for some publishers, and they would have to buy from European mills directly. The good thing is, this has expedited the adoption of local and regional papers. For some, it is a painless transition; for others, less so. But there is little choice left.
Quincy Lui: It doesn’t affect us much, since our main U.S. suppliers, Fibermark and Dupont, are in the specialty paper business, and we have found local suppliers to replace European mills that are no longer exporting to Asia.
And what has been the impact of the economic slowdown?
QL: We experienced a substantial drop in sales in first quarter 2009 with smaller but more frequent orders. Coated paper is usually most reactive to market changes because a cut in the print advertising budget will immediately result in less direct mail, catalogues and glossy magazines. So we de-stock on such papers and indent more of those that move fast.
SF: The biggest impact has been the tumbling value of inventory. As such, we have minimized bulk purchasing while maintaining a balanced inventory. We have also made more visits to clients to explore how we can tailor solutions to their requirements. It’s about surviving, and winning, together in difficult times.
Are you seeing any special trend or request for paper?
QL: There is a growing demand for rolls as more printers install CutStar sheetfed machines. Clients are also seeking more information, such as the source of pulp.
SF: FSC in particular, and PEFC as an alternative, is on everyone’s mind. Mostly, our clients only want to know if a mill is FSC certified. And since FSC came along, enquiries about 100% recycled paper have gone down.
Do you have any popular stocks in your warehouse?
SF: New Generation by Oji Paper is among the popular stocks. The mill recently introduced an FSC-certified brand, Mori-Silk, which has been widely accepted by publishers and printers. APP Gold East’s coated grade Space Shuttle and UPM Changshu’s FSC-certified uncoated and single-coated stocks are also very popular. As for book covers and high-end packaging, Hongta board is our clients’ favorite.
QL: Two of our popular coated grades are Stora Enso’s LumiSilk, which is both FSC and PEFC certified, and Delfort Group’s Thin Coat Plus. The latter, available from 31gsm to 60gsm, is specially developed for HTH and is often used for full-color sheetfed printing of high-end travel guides, dictionaries, Bibles and hotel directories. For book covers, international publishers usually specify FSC-certified Skivertex and Wibalin brands.
Has China-made paper met international standards?
QL: Yes, and this is directly attributed to the huge investments in new equipment and papermaking machines, especially in the fine paper segment. There are still concerns about the source of the pulp used by Chinese mills, though. As for technical and specialty stocks, HTH continues to import from European and American mills because they produce these papers more efficiently and at higher quality.
SF: Affirmative, but Chinese mills tend to focus more on cost than quality because the domestic market is very price sensitive. With the exception of Stora Enso Suzhou’s coated paper mill, which produces only around 20,000 metric tons monthly, most Chinese mills target the medium to low-end market segments. Less than 10% of APP Gold East’s Space Shuttle brand, for instance, is used for domestic consumption while the rest is for the export and re-export markets.
Has China’s pulp-and-paper industry cooled down?
QL: I don’t see any slowdown yet. Leading European mills like Stora Enso and UPM Kymmene have been expanding their China operations. Some mills making corrugating and carton packaging materials, such as Nine Dragons and Lee & Man, have reduced their production capacity, but those producing uncoated and coated woodfree—APP Gold East, UPM Changshu, Sun Paper, Stora Enso, for instance—are doing the opposite. APP and Shandong Chenming are planning to increase their fine paper production by 1.45 million metric tons by the end of 2011. I think Chinese mills’ capacity will soon overtake those in other regions such as Europe and North America.
SF: Some projects might have been on hold due to the slowdown, but the easing of credit in recent months has changed that. Oji’s first production line in Nantong, for instance, is expected to produce over 400,000 metric tons of coated and uncoated paper yearly once it gets started in 2010. So, unless the Chinese government intervenes, aggressive growth will continue.
How are paper prices doing?
SF: Prices went up rapidly by 25% in the first half of 2008 and peaked in July. Then, it went on a free fall, dropping about 30%, as everybody started de-stocking and stopped buying. Not many enquiries and orders came in until May 2009. Prices have increased by 3% to 5% since, but overall demand remains weak.
QL: Yes, the prices seem quite stable now, and I think an increase of US$20 to $40 per metric ton for coated and uncoated woodfree is possible in the coming months. Of course, any hikes would depend on the economic situation.
SF: Fortunately, production, raw material, energy and transportation costs have dropped. I can’t say what prices I would like to see, only that swings in paper prices do no one any favors.
What do you expect to see in the next few months?
QL: Both pulp and paper prices have gone up, but the increment is not big. We don’t expect any big price jump in coming months. We’ll continue to see demand for paper rising due to increased domestic consumption. There is also greater demand for coated fine paper that is used in manuals and also packaging grades in various Asian markets.
SF: The paper market is currently still hugely oversupplied. We may experience a small price rebound once in a while, but there is enough surplus to cope with a spike in demand. The question now is whether the mills are prepared to adjust supply to match demand.
