Perceived overcapacity in the Chinese steel and aluminum industries are topics of heated discussion in those sectors, and similar conditions could be brewing in the paper industry.
In North America and Europe, papermakers have idled newsprint and graphic paper capacity as demand for those products has declined. In some cases, papermakers have invested to convert lines and mills away from those grades into a packaging grade.
According to presenters at the 2015 RISI China International Recycled Fiber Conference, which took place in early December in Shenzhen, China, Chinese companies—sometimes in cooperation with the Chinese government—are taking similar steps to limit mill capacity in that nation.
Tang Yanju of the Beijing-based China Resource Recycling Association (CRRA) provided several examples of “backward capacity elimination” that have taken place in 2015, including the elimination of some 4 million tons of papermaking capacity in Guangdong Province in south China.
Consolidation has played a role, said Tang, who said in 2014 output from China’s eight largest papermakers increased while at five of eight companies in the next tier output either declined or remained level compared to 2013. “We’re seeing smaller companies being acquired or being phased out of this market,” she commented.
China’s national and provincial governments are offering subsidies in some cases, said Tang, to eliminate older mills while reducing the harm to the regional economy.
Guo Yongxin of the China Paper Industry Chamber of Commerce said in the first nine months of 2015 the output in China of newsprint, uncoated printing and writing paper and coated printing paper all declined compared to the first nine months of 2014.
Guo also offered the example of Huatai Paper in Shandong Province, China, which has “transformed some newsprint capacity to graphic paper capacity” after seeing its newsprint output peak in 2011.
Liu Shousheng of the China Packaging Association referred to a “market integration process” in the paperboard sector in China where “the strong enterprises become stronger, with the weak ones out of the market.”
Both Liu and Tang of the CRRA referred to the western migration of the Chinese papermaking industry, as a percentage of production moves closer to the growing urban centers in China’s interior. “Given the rising production costs and environmental pressures” found in eastern China, said Tang, “the industry is relocating itself to central and west China.”
Sarah Feng of the UMPaper subsidiary of Boston-based RISI said in Guangdong Province officials have focused on “closing down highly polluting, energy intensive and inefficient facilities.” In the Dongguan region of that province, “By 2015, 54 packaging paper [plants] with designed capacity below 200,000 metric tons and tissue [mills] below 50,000 metric tons—totaling more than 3 million metric tons of capacity—were closed down.”
Such measures will be needed, warned Liu, who cited excess capacity as a major issue looming in China even in the comparatively healthy paper packaging sector. “We are faced with more than 10 percent of enterprises [stopping] production and going bankrupt and difficult business conditions for another 20 percent of the enterprises,” he remarked.
The 2015 RISI China International Recycled Fiber Conference was Dec. 2-4 at the JW Marriott Hotel in Shenzhen, China.