China s Pulp and Paper Sector: Supply-Demand Trends and Medium Term Projections He Dequan China Economic Consulting, Inc and Christopher Barr Center for International Forestry Research (CIFOR) CAF-CIFOR Seminar for EC Asia Pro Eco Project Beijing, November 22, 2005 Partially funded by EC Asia Pro Eco Program
China s Paper and Paperboard Industry During 1990-2005, aggregate demand has tripled from 14.6 million to ~ 50 million tonnes China s production has also climbed from 13.7 million tonnes in 1990 to ~ 46 million tonnes in 2005 Historically, much of China s paper production was for low quality and nonwood grades Since 1990s, rapid growth in both demand and capacity for mediumto high-grade products Increasing foreign and domestic investment in large-scale, world class mills ( New China ) China has considerable room for further growth, as per capita paper consumption is still quite low
( 000 tonnes) 4,200 3,600 3,000 2,400 1,800 1,200 600 0 Newsprint Projected Supply and Demand, 2000-2010 2010 Consumption Production 00 01 02 03 04 05 06 07 08 09 10 Newsprint demand correlated to GDP, literacy, advertising During 1995-2005, demand grew from 850,000 to 2.6 m tonnes/yr Demand to increase by 7.2% p.a. to reach 3.9 m tonnes in 2010 Imports of approx. 500,000 tonnes/yr
( 000 tonnes) 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 Printing & Writing Projected Supply and Demand, 2000-2010 2010 Production Consumption 00 01 02 03 04 05 06 07 08 09 10 Demand driven by GDP growth, literacy, advertising, education & commercial printing During 1995-2005, demand doubled to reach 13.5 m tonnes Demand to grow 1.2 m tonnes p.a. to reach 19.5 m tonnes in 2010 Rising quality within China, yet imports will grow to 1.6 m tonnes
( 000 tonnes) 6,000 5,500 5,000 4,500 4,000 3,500 3,000 2,500 2,000 Tissue Projected Supply and Demand, 2000-2010 2010 Consumption Production 00 01 02 03 04 05 06 07 08 09 10 Demand driven by rising pers. incomes, hygienic practices, health concerns During 1995-2005 supply and demand climbed from 1.6 to 3.8 million tonnes Demand to grow at 8.0% p.a. to reach 5.6 m tonnes in 2010 Only grade where China is net exporter
Containerboard Projected Supply and Demand, 2000-2010 2010 ( 000 tonnes) 28,000 24,000 20,000 16,000 12,000 Production Consumption Demand driven by industrial production and consumer spending Consumption up from 7.5 m tonnes in 1995 to 18.5 m tonnes in 2005 Production & quality of corrugated medium and linerboard have increased since 2000 8,000 00 01 02 03 04 05 06 07 08 09 10 Demand to reach 25.9 m tonnes in 2010, supply to reach 23.9 m
Boxboard Projected Supply and Demand, 2000-2010 2010 12,000 10,000 Consumption Demand linked to spending on consumer goods and merchandise exports ( 000 tonnes) 8,000 6,000 4,000 2,000 0 Production 00 01 02 03 04 05 06 07 08 09 10 During 1995-2005, consumption tripled from 2.4 m to 7.5 m tonnes Production growing rapidly -- likely to reach 9.4 m tonnes in 2010
China s Growing Demand for Paper 30000 68.5 m ( 000 tonnes) 25000 20000 15000 10000 5000 14.6 m 46.7 m New sprint Printing & Writing Tissue/Household Containerboard Boxboard Other 0 1990 2003 2010 Source: He and Barr, 2004
( 000 tonnes) 70,000 60,000 50,000 40,000 30,000 20,000 10,000 Means Increased Demand for Pulp Fiber 0 1995 2000 2003 2010 Nonwood Waste Paper (domestic) Waste Paper (import) Wood Pulp (domestic) Wood Pulp (imports) During 2000-2010: Nonwood fiber declining from 40% to 15% of total Waste paper growing from 40% to 58% to reach 35 m tonnes/yr in 2010 Wood pulp growing from 20% to 25%, to reach 15 m tonnes/yr in 2010 Source: He and Barr, 2004
China Actively Promoting Integrated Pulp & Paper Development In Tenth 5-Year Plan (2001-2005), government prioritized capacity expansion: paper and paperboard to reach 40 million tonnes/yr wood-based pulp to reach 2.2 million tonnes/yr 42 pulp-paper projects prioritized for integration of fiber supply, wood pulp, and high-grade paper production Foreign investment joint ventures encouraged in: plantation development chemical (> 300,000 tpa) & mechanical pulp (> 100,000 tpa) high-grade paper and paperboard
Fiscal Incentives and Capital Subsidies Tariff reductions for priority projects Tax holidays for foreign investors No tax for first 2 years 50 % normal tax rate for first 3 years of profit Loan interest subsidies During 1998-2002, Finance Ministry allocated US$ 1.6 bn (RMB 13.8 bn) to upgrade and expand 21 pulp-paper mills Discounted commercial loans and extended terms of repayment
Large Subsidies for Fast-Growing Plantation Development. Government is budgeting RMB 70 billion to finance 13.3 million ha of FGHY plantations for 2001-2015 (> US$ 600 million/year) Of which, target for commercial use = 10.8 million ha, including 5.8 million ha for pulpwood Ministry of Finance to allocate 20% (US$ 1.7 bn) as loan interest subsidies State-owned banks to provide 70% (US$ 6.1 bn) as discounted loans Local governments to provide 3% Plantation companies to provide 7% from commercial sources
but Major Challenges Remain China has proven it is very good at planting massive areas. But pulp plantations will be limited by: Competition for land, uncertain tenure Plantations spread out and in small blocks Limited genetic material and variable silvicultural practices Restrictive harvesting quota scheme Can China achieve FGHY plantation targets on a sustainable basis? At what delivered wood cost for pulp producers? Will high wood costs in China allow pulp producers to compete with imports from Brasil or Indonesia?