Can China alone keep the pulp market tight? What about India?

Implications: With a worldwide recession looming, the market pulp industry continues to be operating at peak capacity with quarterly price increases becoming the norm.   China has been the engine driving the world's  business but can it continue on and on?  Will China's domestic demand ever be satisfied in the next decade....especially for Uncoated FreeSheet? India has the world's largest middle class estimated at 250 million.  Their paper industry is in dire need of upgrading and now their larger companies have begun ordering big, high speed, high tech paper machines from Germany and Finland.  Will an expansion in India further tighten an already tight market?   What will this expansion mean to non-integrated paper mills in the industrialized nations who are already claiming exhorbitant pulp prices combined with energy, labor and transportation costs are forcing them to consider shutting down?  The answer may be forthcoming soon!

Analysis: For the past several years China has been buying market pulp as well as recovered papers such as OCC and ONP at record levels resulting in tight markets in all sectors.  In packaging papers alone (linerboard, medium, sack kraft, tape etc) Nine Dragons and Lee & Mann have been starting up new machines almost monthly over the past 8 months.  The Government has mandated the closure of hundreds of old, small relatively inefficient paper mills all over the country which will result in a tight market for all the new production coming on stream in 2008.  This means that OCC and ONP as well as virgin unbleached Kraft pulp will find a ready market in China for at least the next 4-5 years.
On the pulp side the Gov't has also mandated the closure of almost 1700 small "mom and pop" pulp mills which have been processing wheat straw, rice straw and bagasse.  The reasons given are to improve the environment by reducing the untreated effluent going into lakes and streams.  While this may be true it's also true that all the new paper machines which have started up since 1999 really don't like these soft, weak non-wood pulps.
This presents a fascinating picture.....while paper demand is expanding rapidly (just consider the rise in consumption...from 22 kg/pp in 2002 to 50 kg/pp in 2006 with projections it will rise to 70 kg/pp by 2010), the Government is shutting down old inefficient polluting pulp mills and also shutting down old small inefficient paper machines.  One is tempted to ask "what's wrong with this picture?".   What it means to the world is that China is destined to be a huge consumer of pulp and recovered paper at an ever increasing rate and at higher and higher levels.  Is the world prepared to continue to satisfy China's voracious appetite?  The answer lies in the word "profitability".   As demand grows, prices will increase and as prices increase supplies are bound to increase.  Mayor Bloomberg in NYC has recently announced a campaign to increase the amount of paper/board being recovered.
But now, what about India?  Many industry observers believe they will soon become another China.  Older smaller paper mills will be replaced by new high speed paper machines which require higher quality market pulps such as NBSK, Radiata Pine, Eucalyptus, Acacia, Birch etc.   This will eventually cause the closure of India's smaller non-wood pulp mills. One of these huge modern machines (400" wide  running 4000 fpm) can consume over 125,000 mt/year of market pulp....and as much as 140,000mt.  Eight of these new machines will consume the entire output of one of the new pulp mills in Uruguay or Brazil....or the new Gunns mill in Tasmania.   Many observers believe the market pulp industry is going to have to continue to expand as fast as it can just to keep up with the demand of emerging markets in China, India and Viet Nam (mentioned as an "under-the-radar" emerging market).