China is No Paper Tiger

Source from:  TJI 09/23/2011

China accounts for one-quarter of world paper production and its share will grow. North American and European board suppliers to the tobacco industry hold an advantage in terms of quality, standardisation and control. Whether those advantages survive the next decade remains to be seen. Experts generally agree it will be China that makes and shapes the cartonboard industry in coming years, both as a producer and a market. For the rest of the world's producers, this offers opportunity and reason for concern. "The emergence of China as a consumer and producer of wood and paper products is beginning to have a tangible impact on the structure of the global industry," according to a recent global outlook. The study, "Compass 2011, Global forest, paper, and packaging sector outlook" by analysts at Deloitte Touche Tohmatsu, goes on to say China will increase its presence in the world market while addressing growing demand at home. On the raw material side, Chinese forest product value doubled in five years to USD 300 billion (EUR 210 billion) in 2010, according to the latest annual market review from the United Nations Economic Commission for Europe and the Food and Agriculture Organisation. "They're already the leading producer and, certainly in terms of demand, they will grow faster than other countries in Asia," summarised Kathy Kneer, a senior consultant at Pöyry Management Consulting USA. The UNECE/FAO assessment, which came out in August, states: "In only 10 years, (China) has more than doubled its production of paper, pulp and paperboard, which now accounts for almost 25 per cent of global production." World cartonboard production will reach 56 million tons in 2020 from 40 million tons in 2004, with most of the increase in production coming from Asia, estimates Pöyry. Almost 80 per cent of global investment in new machinery is taking place in China or the Asia-Pacific region, according to Pöyry, a global forestry industry consultant with home offices in Finland. The Deloitte study says Chinese companies can be expected to acquire foreign assets as they become more global and this will change their competitive profile, making life more difficult for traditional players. Domestic consumption of paper is about one-third that of developing countries, however the market is expected to grow quickly to 143 million tons in 2021. Intimidating? Although the broad picture points to an upcoming battle for market share, paper company executives responsible for product used in the tobacco industry say they are focused on market opportunities. Chinese tobacco packagers, like the rest of the world, need paper that delivers on quality and productivity. They want a product that will run at maximum production speeds, and they want expert advice on site, according to cigarette-board suppliers. Analysts say their optimism is justified. For now. Producers in northern Europe and North America hold an advantage when it comes to the folding boxboard (FBB), chemithermomechanical pulp (CTMP) and solid bleached sulphate (SBS) used in tobacco packaging. The quality control and monitoring needed to make these products begins with timber selection and runs through production. "MeadWestvaco participates in the Chinese market by providing high-end product which does not compete with what is currently being produced in China," said Kevin Clark, the president for tobacco business at MeadWestvaco (MWV) in Richmond, Va. MeadWestvaco makes SBS board. Its trademark Promina brand is offered in several grades. Packagers can order board with a coating to optimise metallisation and foil lamination. They can order with, or without optical brighteners. It's all about enhanced brand perception and operational efficiency, says MeadWestvaco. Company experts are available to work with clients to make it happen. "We do this on a one-to-one basis," says Clark. "We are finding more and more people focused on quality and the aspects of total cost of ownership. Customers want a greater understanding of the performance and the value of the substrate they use." They are asking how to enhance paperboard and take design to new levels, Clark said. "What we are finding is an actual thirst for understanding on how substrate works." Based in Espoo, Finland, M-real supplies tobacco clients with CTMP board. With more than a half-century in the business, the Metsäliitto Group subsidiary promotes its intimate knowledge of customer processes as the means to maximise value. Tako cigarette grades are tailored to meet optical, strength, runnability, printability and sensory demands of multinational tobacco packaging… Chinese companies are clients, says Neil Fox, who is the person responsible for tobacco-related business at M-real. "Chinese producers are naturally strong in their domestic market, but a lot of sophisticated experience is needed to be a successful supplier to multi-national tobacco," said Fox. "It is a challenge for the huge multi-grade, non-dedicated swing machines in China to meet the special quality requirements of multi-national tobacco with consistency in quality and the technical support," he said. "It is a challenge to manage quality variability when production is not integrated with raw materials such as pulp or fibre," said Fox. "Multinational buyers must also carefully consider issues like carbon footprint and wood traceability in their sourcing decisions." For the moment, in fact for quite a few moments to come, there is no reason to fear loss of tobacco-packaging market share to China, according to Pöyry analyst Kneer. As the largest SBS producer, North America should be safe for the next five to ten years, she said. With regard to FBB, Europe should retain its current position as well during this time period. Then it will be China's turn. Enditem