Alberta Pacific Press Release

China's fast-growing paper industry needs pulp
Canada's shipments hit $500 million in '02.
Abitibi is building mill through its 50% share of Asia's top newsprint producer, Pan Asia

JENNIFER M. ELLSON Freelance
24 January 2004
Copyright © 2004 Montreal Gazette

In the world of pulp and paper, Canada and China are like yin and yang - the great opposites that complement each other. While there are closings and downsizing in the West, paper mills are sprouting in the far east. As mills continue to scrimp and make do in North America, new machines are being built in Asia. As business booms in China, it is bearish in Canada.

Lately, the Chinese have made their presence in the industry felt with a bang by operating low-cost mills with modern machines. China can deliver paper around the world at a lower cost than most Canadian mills.

The birthplace of paper is now the site of the world's fastest and biggest paper machines. As the Chinese produce their own paper and export to neighbouring countries, Canadian mills saw their exports fall and inventories soar. Newsprint exports to western Europe and Japan were down in October by 20 per cent and 43 per cent, respectively. But China's bullish industry is Canada's opportunity, said Rob Wood, executive director of the Pulp and Paper Technical Association of Canada. "The new machines in China focus on the paper side, not the pulp side," Wood said.

And there lies the chance for Canadian companies to benefit from China's market growth, he explained, because Canada is one of China's biggest suppliers of pulp. China's boom is indeed good news to Canadian pulp producers, said Eric Pelletier, trade commissioner for China and Mongolia in the federal Department of Foreign Affairs. "China has become the largest destination in the world for pulp imports," Pelletier said in a statement. He said China bought pulp worth $500 million U.S. from Canada out of the $3 billion it spent to import pulp in 2002.

The recent move by the Chinese government to scrap value-added taxes and tariffs on pulp and newsprint is also good news for Canadians, Pelletier said. "This change in Chinese government policy will create new opportunities for Canadian pulp exporters." Low overhead and labour costs in China, combined with a large consumer market, make it appealing to foreign investors. In 2002, China attracted direct foreign investment worth $60 billion U.S. - more than any other country. About 400 Canadian companies invested a total of $670 million, mostly in Shanghai and Beijing.

One such investor is Abitibi-Consolidated, the world's largest newsprint producer. In July 2003, the Montreal-based company bought 50 per cent of Asia's leading newsprint-maker, Pan Asia Paper Co. Pan Asia then entered into a joint venture with China's Hebei Longteng Paper Corp. to build a newsprint mill in Hebei province, 280 kilometres southwest of Beijing. "China is one of the world's fastest-growing markets for paper, especially newsprint," said John Weaver, Abitibi's president and chief executive officer. "Pan Asia is our growth vehicle in the world's most promising region."

Promising it is, as newsprint demand in China increased from 1.15 million tonnes in 1998 to about 1.8 million tonnes in 2002. Weaver said he is looking forward to 2008, when Beijing hosts the summer Olympics and Chinese newsprint consumption is expected to hit 3 million tonnes. Chinese papermakers are anticipating growth in consumption. Huatai Paper, the largest newsprint producer in China, aims to produce one million tonnes of paper in 2008. China's growth is not only in newsprint. Finnish engineering firm Jaakko Poyry estimated China's paper-and-boxboard consumption rising by more than 4.6 per cent per year against a global average of 2.1 per cent. China already consumes more than 34 million tonnes of paper and boxboard each year.

A country with 1.4 billion people, China has the world's fastest growing economy, increasing at eight per cent a year. The strong economy allowed for a banner year in imports of paper-making machinery. China Paper Online reported that in 2003, paper machines imported through Shanghai were worth $111 million U.S. - up 35.9 per cent from 2002 and 72 per cent from 2001. The news agency also said foreign paper companies set up 671 plants in China in 2000. There are more than 5,000 pulp and paper mills in China, but most are the older, smaller and inefficient mills that are rapidly disappearing as China builds world-class paper mills. But as China's paper industry expands rapidly, problems are starting to brew. "A lot of money is being invested in China in buying new machines, but not so much in developing technology," said Peter Tyne, PAPTAC chairperson.

Traditionally, China used non-wood sources like bamboo and wheat straw to make paper, but the new machines use wood pulp. Pulp technology in China is not yet as advanced as it is in Europe and North America. There's also the issue of overproduction. At the end of 2003, four of the eight publicly listed newsprint companies in China - Jilin Paper, Jiangxi Paper, Yibin Paper and Jiazhi Paper - were stopped from trading because of an oversupply of newsprint. But the Chinese believe the coming Year of the Monkey will bring good luck to the economy. Hong Kong-based brokerage and investment firm CLSA Asia-Pacific pointed out that in the previous three years of the Monkey, the Hang Seng index has performed well. It rose 70.2 per cent in 1968, 77.7 per cent in 1980, and 23.8 per cent in 1992. According to CLSA's Feng Shui index, industry will prosper as the Goat departs and the Monkey arrives. Canadian papermakers are also hoping their fortunes will pick up as the Monkey arrives.

j_ellson@hotmail.com