 The U.S. pulp industry is now relatively consolidated with the top five companies in the U.S. accounting for 60% of revenue share in 2009, Michael Armstrong, vice president of advisory services, PricewaterhouseCoopers said when speaking to a group of valve manufacturers at VMA’s Market Outlook Workshop, held last month in San Francisco. He explained the industry has also become a vertical market with certain companies specializing in certain types of paper; and some smaller companies have been able to compete effectively by specializing and reducing costs by locating mills close to timber and customer supplies. The U.S., Canada and Europe are generally well advantaged as producers of pulp because of their access to raw materials, in contrast to China, which doesn’t have a lot of forestland. And Brazil has joined the ranks of advantaged countries in terms of pulp because of its abundance of Eucalyptus trees, which grow fast and have short fibers good for the competitive industry of tissue.
China is also emerging as both a major producer and consumer of paper, Armstrong said. But although the paper market has been heavily subsidized by a subsidy that helped triple production, “China’s paper consumption is going faster than its growth in production,” he said, which presents export opportunities for other countries.
As far as capital expenditures, the pulp & paper industry’s high cost of equipment makes barriers to new facilities high. “For example, the USDA estimated that the paper industry is the most capital-intensive industry in the U.S. economy,” Armstrong pointed out. Capital spending fell dramatically during the recession, by about 37.2% in year-over-year changes for 2009. Spending in the near term is not likely to be on large capital expansion, either, but “rather projects to deliver efficiencies—a big chunk on cost reduction projects, and a smaller amount on projects easy to execute,” he said.
Certain segments of the paper consumption side, however, will suffer far into the future, such as newsprint and paper for printing books, which is giving way to electronic communications and tools such as electronic books. He said a market research firm recently estimated that global sales of e-readers will be 12 million units this year compared to 5 million in 2009.
Armstrong predicted that pulp demand should grow steadily as overall downstream paper demand recovers. Newsprint and paper for books and writing has a very negative long-term outlook. The outlook for containerboard is more favorable because of capacity closures, lower inventories and recoveries in developed nations.  |
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