By Li Meng, Economist, Graphic Paper, RISI
BEIJING,
Dec. 12, 2011 (RISI) -
The year of 2011 is called the "year of coated woodfree paper" by most Chinese producers due to the wave of capacity expansion and resulting flood of coated woodfree production in China. Producers and traders have felt quite pessimistic since the turn in market prices in July. Prices have dropped approximately RMB 1,000/tonne, or about 15% from their level in June, and are predicted to decline further in the coming months because of the continued imbalance in the market and declining cost pressures as pulp prices fall. Producers keep asking me what they should do to survive in this market. I can understand their worries and have to say that this imbalance was inevitable given the wave of new coated capacity. The slowing in demand growth for paper due to some slowing in economic growth and competition faced by print media from electronic media is not helping matters.
As a dominant player in Asia's market, China's coated woodfree paper output accounted for about 43% of total Asian production in 2010, and will account for an estimated 47% in 2011. China has been driving Asia's coated woodfree paper output up dramatically in recent years, and this year is no exception. In 2006-2011, Asian coated woodfree production has increased an estimated 2.4 million tonnes (or 21%), while demand has risen about 1.3 million tonnes. During this same period, capacity has grown about 4.1 million tonnes with a growth rate of 33%, and in 2011 alone, Chinese coated woodfree paper producers have added about 1.6 million tonnes of new capacity. Chinese production has increased by 107%, or 3.4 million tonnes. However, Chinese domestic demand seen only a 2.1 million tonne gain. These increases have led to the overcapacity, and have been a major factor behind the price decline and weak margins for producers. Meanwhile, the two largest potential export markets for Chinese coated paper exports, North America and Europe, have been virtually closed to Chinese producers by the anti-dumping and countervailing duties implemented in 2010.
So what can coated woodfree paper producers do to escape from the chaos and improve their margins?
One thing to do, of course, is to find more external markets to absorb some of the additional production. In this they have been successful even as shipments to the USA and Europe have continued to retreat. Total Chinese coated woodfree exports for the year through October are up 17% (or 167,000 tonnes), although the share of exports that went to the USA and Europe dropped to 8% from 20% in 2010. Exports within Asia accounted for the largest share, accounting for 59%, which is mostly due to gains in Japan, India and Hong Kong. The Middle East ranked second with shipments there nearly doubling. Exports to Africa and Latin America have also risen to some degree. Chinese exporters benefited from less competition with Japan, whose production was severely hurt by the earthquake and tsunami in March. Japanese coated woodfree exports year-to-date through October show a 30% decline. As the temporarily closed machines continue to restart, Chinese coated paper exports will meet more competition with Japan in the coming months.
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Li Meng, Economist, Graphic Paper, co-author of the Asian Pulp & Paper Monitor and the Asian Graphic Paper Forecast, works out of RISI's Beijing office, and can be reached at Tel: +86-10-57455887, Email: lmeng@risi.com.
