China's Fiber Appetite Escalates

Implications: China's fiber (both virgin market pulp and recycled) is growing at a faster pace than anyone could have predicted.

Their major companies, Nine Dragons Paper for example, are planning enormous new paper mills of massive proportions which will require huge amounts of OCC. Their proposed Chongquing mill will have as many as 12 paper machines.  Each machine will be capable of producing 450,000mtpy.

Only 10 years old, Nine Dragons will soon overtake Smurfit-Stone, the world's current #1 producer of container board.

Lee & Mann, China's #2 largest producer is planning to install 3 new paper machines with a total capacity of 960,000 mtpy for startup in 2008.

Guangzhou Paper is planning a fully recycled content newsprint mill which will produce 2100 mtpd - which will make it one of the largest in the world. This will require shiploads of ONP (Old Newspapers) from the industrialized nations plus from their own domestic market. The Chinese Government has set a target of 80% recovery rate for all paper products. In the US the current recovery rate is 70% for OCC and ONP.

Analysis: Nine Dragons Paper is currently ranked as #7 among the world's leading producers of linerboard, corrugating medium and other packaging papers. They have recently received permits from the City of Chongquing, an interior city of 8 million far upstream on the Yangtze River past the Three Gorges Dam (their main electricity provider) to build a massive 12 machine mill. It staggers the imagination to think this mill, when completed, could produce 5.5 million metric tons of container board/year. This would be one of the first major mills built in the interior. Currently all paper mills are along the coast or in the southern part of the country. This might indicate the Government's intention to encourage industrial expansion in the somewhat backward western interior part of the country.

Lee & Man purchased a US unbleached softwood pulp mill in Somoa, CA in 2005 to supply their papermills in the PRC. With this assured supply they are now moving ahead to install three more machines with a total capacity of 960,000 mtpy for startup in 2008. The company is now looking to purchase the shut Cosmopolis, WN  dissolving pulp mill (hemlock and douglas fir) from Weyerhaeuser. If demand becomes great enough this mill could swing to unbleached softwood with little or no capital expenditure.

Guangzhou Paper's intention to build a fully recycled content newsprint mill is noteworthy in that China already has a surplus of 700,000 mt/year of newsprint. Trials are being run on the West Coast of the US to secure some of this business. Already North American newsprint is oversupplied with more than 3 million mt/year having been shut down in the past 6 years.  Having China supply even more newsprint to US publishers would surely dampen prices.