Paper producers look at non-print markets

Last week, I gave a presentation at the RISI European Economic Outlook conference in Amsterdam, which focuses on the global forestry, pulp and paper sector. The repeating theme was the continuing effect of the GFC on the industry, the sovereign debt crisis in a number of European countries and the Asian growth machine. Another issue discussed was the need to address the poor reputation of the forestry, pulp and paper sector in the general population regarding environmental concerns.

From a structural point of view, the European and North American industries both face problems that will test their resolve. There are older machines in North America that may need to be modified or replaced to compete against the newer machines being installed in other parts of the world. In Europe, the industry has a number of machines running undercapacity, so unless there is a significant upturn in demand for paper, some machines will need to retired. Both Europe and North America are facing structural challenges on top of an industry that has lost as much as 40% of its market over the past two and half years.

The market erosion is firstly the result of the GFC. But tablet computing is also changing the delivery method to the consumer. Only a few days before at the IFRA publishing conference in Berlin –traditionally a printing event – the main topic was the growth in tablet computing, led by the Apple iPad.

Printing is a shrinking market in Europe and North America, but the conference heard that printing and packaging are growing significantly in developing nations. In the case of packaging, Asia is larger in production volumes than Europe and North America combined. And China is bigger in volume than either North America or Europe. The growth in printing and writing papers is also much larger than either of the traditional markets.

A surprise topic was the role unrelated markets are playing on the forestry, pulp and paper sector. Over the past year, failures in the world’s cotton crop has meant harvest is down 35%. The textile industry is using wood pulp in the form of ‘dissolving pulp’ to supplement cotton fibre. Around the world, a number of pulp mills are being converted to output dissolving pulp, which cannot be used in paper manufacturing. So that although total pulp production is up in volume, the paper industry may feel the pressure of a shortage until the global cotton crop returns.

Competition for wood fibre is set to become even tougher. The UK government alone has a large number of bio-energy projects on the drawing board. These projects mostly burn wood pellets: highly compressed dried wood. The available forestry for this is small, but demand is increasing as the UK’s carbon obligations come into play. The paper industry will be fighting for the same forests resources as this totally new energy sector. There is need for a tenfold increased of wood resources for the UK in order to meet bio-energy demand in the future. The likely scenario is that new forestry will be planted in nations such as Brazil or Chile for wood fuel pellets, but until they mature, there will be intense competition for wood resources.

Phillip Lawrence is a consultant and speaker who specialises in print and the environment. He consults for paper firms, including Asia Pulp & Paper

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