The paper industry needed more consolidation, the heads of Nordic papermakers UPM-Kymmene and M-real said yesterday, adding that they were ready to support a transformation of the sector.
The global paper industry has struggled for close to a decade to climb out of a slump caused by overcapacity, soft demand, low prices and weak earnings,heightening the need to consolidate.
But merger deals have been scarce throughout that period, and analysts said financing, valuation and competition issues would likely continue to constrain players' options.
UPM-Kymmene's chief executive Jussi Pesonen said his firm aimed to be an active player in the consolidation of an industry struggling to slash costs and close excess capacity.
"Definitely this industry needs to consolidate. Our role will be (that) of an active player," Pesonen, head of the world's third-largest firm in the sector by capacity, said at Reuters Paper and Packaging Summit.
"There will be swaps or share deals.We most probably won't see any cash deals in this industry for the next year or two," Pesonen told the summit at Reuters News bureau in Helsinki.
"We will participate only in those kinds of opportunities that create value for our shareholders and the company."
The current global downturn has further knocked demand for paper, as print advertising has dived.
"In the short term (the focus is on)restructuring, cost savings and balancing demand-supply," Pesonen said."This is a cost game. The lowest cost producer will always be better positioned."
Finnish packaging and paper producer M-real, whose sale last year of its graphic papers business to South Africa's Sappi for 750 million was the biggest deal in years in the sector, said it also aimed to support further consolidation.
"Our goal is to support consolidation of the European paper industry," M-real's chief executive Mikko Helander said at the summit.
"No one can be satisfied with the European paper industry's financial performance. Part of the difficulty is the industrial structure."
Helander said M-real was working hard on a strategic review that is seeking new solutions for its remaining uncoated fine paper and specialty paper units.
He said that such deals could be divestments, mergers, joint ventures or other unspecified options.
Helander said that M-real had taken big strides towards the structure that it wanted, with a heightened focus on packaging."We are moving in the right direction - the impact of paper has been reduced, the impact of packaging has increased."
Packaging now accounts for about 40% of revenues.
He said that in the future M-real would retain some papermaking but he said it remained to be seen how much paper production it would keep.
Moody's analyst Christian Hendker said sector consolidation was possible,but constrained by a lack of debt financing available, difficulties in valuing assets in a falling market, and potential competition issues.
Monday, August 24, 2009
Tuesday, August 18, 2009
SCG Paper enters premium market with "ideas"
SCG Paper, the country's largest integrated paper maker, has launched a new premium product under the "Idea Work" brand and aims to make Bt1 billion from this in the first year.
The brand was developed in order to diversify the market and meet different customer demands.
"Despite the slowdown this year, the market of office paper has been growing by 7 to 8 per cent per annum due mainly to the importance of computers in offices nowadays. Moreover, paper has become a tool in building an impressive image," SCG Paper's president Chaovalit Ekabut said.
The firm currently offers two office paper products: Idea Green and Idea Work.
"The segments targeted by the two products are clearly differentiated. 'Idea Green' attracts environmentally friendly users, while 'Idea Work' should create a new niche market by serving demands for premium paper products," marketing director Puttaporn Saengratanadej said.
He added that Idea Green hold a 10 per cent market sharer, and SCG Paper hopes its new product will hold 15 to 20 per cent of the market within a year.
He added that in Thailand last year, about 200,000 tonnes of office paper, at an estimated value of Bt6 billion, was consumed.
Chaovalit said the paper industry in the second half should not be any worse than it was in the second quarter of this year, when demand fell by 10 to 15 per cent compared to the same period last year.
"It is difficult to predict the market situation in the second half because it relies mainly on the global economy.
However, we believe that we have survived the bottoming out in the first quarter, when demand plunged by 20-25 per cent year on year," he said.
In addition, he said, the SCG paper plant in Vietnam had been up and running since the second quarter and is expected to produce around 50,000 tonnes this year. The plant has total production capacity of 220,000 tonnes per year.
Meanwhile, the price of short and long paper pulp has risen by US$100 (Bt3,398) per tonne from the start of this year, so short and long pulp now cost $500 and $600 per tonne respectively.
Although the price of oil has been on a continuous rise, he said the price of raw materials should not be too affected because it is more controlled by demand and supply.
The brand was developed in order to diversify the market and meet different customer demands.
"Despite the slowdown this year, the market of office paper has been growing by 7 to 8 per cent per annum due mainly to the importance of computers in offices nowadays. Moreover, paper has become a tool in building an impressive image," SCG Paper's president Chaovalit Ekabut said.
The firm currently offers two office paper products: Idea Green and Idea Work.
"The segments targeted by the two products are clearly differentiated. 'Idea Green' attracts environmentally friendly users, while 'Idea Work' should create a new niche market by serving demands for premium paper products," marketing director Puttaporn Saengratanadej said.
He added that Idea Green hold a 10 per cent market sharer, and SCG Paper hopes its new product will hold 15 to 20 per cent of the market within a year.
He added that in Thailand last year, about 200,000 tonnes of office paper, at an estimated value of Bt6 billion, was consumed.
Chaovalit said the paper industry in the second half should not be any worse than it was in the second quarter of this year, when demand fell by 10 to 15 per cent compared to the same period last year.
"It is difficult to predict the market situation in the second half because it relies mainly on the global economy.
However, we believe that we have survived the bottoming out in the first quarter, when demand plunged by 20-25 per cent year on year," he said.
In addition, he said, the SCG paper plant in Vietnam had been up and running since the second quarter and is expected to produce around 50,000 tonnes this year. The plant has total production capacity of 220,000 tonnes per year.
Meanwhile, the price of short and long paper pulp has risen by US$100 (Bt3,398) per tonne from the start of this year, so short and long pulp now cost $500 and $600 per tonne respectively.
Although the price of oil has been on a continuous rise, he said the price of raw materials should not be too affected because it is more controlled by demand and supply.
Eucalyptus debate continues
The impact of farming eucalyptus trees on Thailand's ecosystem remains a highly controversial topic for agriculturists, academics and state officials.
Some academic research says eucalyptus plantations have a devastating effect on the environment as they dry up groundwater reserves and leach vast quantities of nutrients from the soil.
But officials and the pulp and paper industry see the tree as a lucrative cash crop that could help reduce farmers'poverty levels.
"There have been studies that say the [eucalyptus] tree has no adverse effects on soil fertility and water levels.The farmed tree business is a source of additional income that also adds green areas to the land," said Charnvit Jarusombathi, senior executive vice-president of the pulp and paper company Advance Agro Plc (AA).
AA has encouraged farmers to grow eucalyptus for 19 years to supply wood chips for its pulp and paper mills.
In 2002, the company heavily promoted eucalyptus as a paper crop and suggested farmers grow the trees around the borders of their rice fields.
Today, some 1.2 million rice farmers grow paper trees in such a manner. The crop provides a supplementary income of about 16,000 baht a year for 20 rai of rice growing 1,600 trees.
Recent reseach conducted by Kasetsart University and the Thailand Research Fund says growing eucalyptus trees in rice fields has less impact on soil and water quality growing them as a standalone crop. These results support other research findings that suggest growing trees for pulp as a mixed crop is less damaging to the environment than as a single, unrotated crop.
AA has more than 100 breeders to develop high-yield tree varieties tailored to meet local climatic and soil conditions.It has tested more than 2,500 eucalyptus varieties to create hybrids that produce high yields, are insect- and droughtresistant, and can be harvested in three to five years, said Mr Charnvit.
As part of its eucalyptus promotion strategy, AA provides farmers with 101 free saplings each and guarantees to buy back the trees three years after planting for 30 baht each.
The company will also allow farmers with bigger land plots to take as many free saplings as they like, to be bought back at 30 baht each three years later.
But the most popular scheme for is to buy saplings at five baht each, and sell the wood back to AA at prices guaranteed between 55 and 70 baht per tree.
"Participants of the first two schemes bear no cost but have used their workforce to take care of the trees. However,all participants get technical assistance from the company," said Mr Charnvit.
At present, there are 175 million paper trees grown on rice and cassava plantations nationwide. Most are in the northeastern provinces. AA plans to increase the figure to 500 million by 2012.
The company expects its farmed-tree business to produce about 580,000 tonnes of short-fibre pulp this year for its two paper manufacturing plants.
The plants also use imported longfibre pulp to annually make about 600,000 tonnes of Double A-brand writing paper.
AA distributes its products in more than 100 countries, and the firm has with 18 representative offices overseas.
Writing paper is the company's major revenue source.
AA forecasts revenue of 20-21 billion baht this year, on a par with 2008. Exports will account for about 55% of income.
The company earlier reported plans to build a third paper mill to increase its annual capacity to more than 1 million tonnes.
But the initiative is on hold because of the downturn, said Mr Charnvit.
Last year 542,694 tonnes of writing paper was sold domestically, down 15%from the year before, according to Industry Ministry figures.
The sector showed improvement in the first quarter, when sales rose nearly 8% year-on-year to 62,450 tonnes.
Some academic research says eucalyptus plantations have a devastating effect on the environment as they dry up groundwater reserves and leach vast quantities of nutrients from the soil.
But officials and the pulp and paper industry see the tree as a lucrative cash crop that could help reduce farmers'poverty levels.
"There have been studies that say the [eucalyptus] tree has no adverse effects on soil fertility and water levels.The farmed tree business is a source of additional income that also adds green areas to the land," said Charnvit Jarusombathi, senior executive vice-president of the pulp and paper company Advance Agro Plc (AA).
AA has encouraged farmers to grow eucalyptus for 19 years to supply wood chips for its pulp and paper mills.
In 2002, the company heavily promoted eucalyptus as a paper crop and suggested farmers grow the trees around the borders of their rice fields.
Today, some 1.2 million rice farmers grow paper trees in such a manner. The crop provides a supplementary income of about 16,000 baht a year for 20 rai of rice growing 1,600 trees.
Recent reseach conducted by Kasetsart University and the Thailand Research Fund says growing eucalyptus trees in rice fields has less impact on soil and water quality growing them as a standalone crop. These results support other research findings that suggest growing trees for pulp as a mixed crop is less damaging to the environment than as a single, unrotated crop.
AA has more than 100 breeders to develop high-yield tree varieties tailored to meet local climatic and soil conditions.It has tested more than 2,500 eucalyptus varieties to create hybrids that produce high yields, are insect- and droughtresistant, and can be harvested in three to five years, said Mr Charnvit.
As part of its eucalyptus promotion strategy, AA provides farmers with 101 free saplings each and guarantees to buy back the trees three years after planting for 30 baht each.
The company will also allow farmers with bigger land plots to take as many free saplings as they like, to be bought back at 30 baht each three years later.
But the most popular scheme for is to buy saplings at five baht each, and sell the wood back to AA at prices guaranteed between 55 and 70 baht per tree.
"Participants of the first two schemes bear no cost but have used their workforce to take care of the trees. However,all participants get technical assistance from the company," said Mr Charnvit.
At present, there are 175 million paper trees grown on rice and cassava plantations nationwide. Most are in the northeastern provinces. AA plans to increase the figure to 500 million by 2012.
The company expects its farmed-tree business to produce about 580,000 tonnes of short-fibre pulp this year for its two paper manufacturing plants.
The plants also use imported longfibre pulp to annually make about 600,000 tonnes of Double A-brand writing paper.
AA distributes its products in more than 100 countries, and the firm has with 18 representative offices overseas.
Writing paper is the company's major revenue source.
AA forecasts revenue of 20-21 billion baht this year, on a par with 2008. Exports will account for about 55% of income.
The company earlier reported plans to build a third paper mill to increase its annual capacity to more than 1 million tonnes.
But the initiative is on hold because of the downturn, said Mr Charnvit.
Last year 542,694 tonnes of writing paper was sold domestically, down 15%from the year before, according to Industry Ministry figures.
The sector showed improvement in the first quarter, when sales rose nearly 8% year-on-year to 62,450 tonnes.
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