By Han Yao, Packaging Economist, RISI
BEIJING,
Jan. 9, 2012 (RISI) -
The aggressive capacity expansion that has taken place over the last 10 years in Asia for both containerboard and boxboard has raised many questions and concerns, especially in the case of China. Previously we looked into the historical capacity data, and employed both macro- and micro-level factors to explain the dramatic increases in capacity in Asia to provide some explanation as well as an outlook on Asian capacity expansion over 2012-2013.
Our research on capacity expansion concentrates on the case study of a target country (China) as well as firm-level analysis of the capacity build-up. This approach provides some criteria for assessing capacity levels as well as explaining the underlying factors behind the round of capacity expansion.
Figure 1 illustrates the macroeconomic fundamentals supporting China's paperboard capacity expansions. It is clear to see that the actual capacity expansion for both containerboard and boxboard are in line with the fixed asset investment growth for the paper industry. More importantly, the advantage of scale is likely to be overestimated by investors when credit is easy and interest rates are low. We also find that the largest amount of containerboard capacity came online in 2011, two years after the money supply reached its maximum level in 2009. The peak in boxboard capacity expansion is expected to be in 2012, since the installation of coated boxboard machines are a bit more complex than containerboard. If the trend we are describing here carries on in the future, a slowdown in capacity growth is certainly likely. Indeed, capacity expansion in China is expected to moderate in the next two years, with the regional market gradually digesting the large capacity additions.
Our "actual/realized capacity" estimate and forecast are based on base number from RISI's China mill-by-mill capacity file, which includes adjustment factors that consider new capacity ramp-ups and machine upgrades, conversions and rebuilds/idles. We believe that those factors affect a machine's capacity level. For instance, if a machine starts up in the middle of the year, the machine's actual capacity for that year should be less than its full designed capacity.
Based on our updates of the announced designed capacity track for the industry, a total of 5.9 million tonnes of additional containerboard capacity and 1.4 million tonnes of new boxboard capacity came on stream in 2011. In addition, the nation's actual boxboard capacity growth is assumed to have spiked to a record high of 11.6% in 2011, and will reach its peak this year, although some expansion projects may be delayed or even cancelled due to subdued demand.
The results of this, including the detailed listing of mill-by-mill capacity expansions and an estimation of the scale of the government's mandated containerboard and boxboard closures for 2011, are provided in RISI's 5-Year Asian Paper Packaging Forecast.
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Han Yao, Packaging Economist, Asian Paper Packaging, works out of RISI's Beijing office and can be reached at Tel: +86-010-5773-3992 or Email: hyao@risi.com.
