Summary
If newsprint was to be a growth paper grade anywhere in the world it was thought to be China with its 1.3 billion people. However, Norske Skog could not make either of its mills profitable during the last 4+ years.. They are now exiting the Chinese market.
Hebei had a production capacity of 330,000mt/year of newsprint. Shandong Huatai will take over the Zhaoxian mill which will make them China's largest producer of newsprint. The deal will be finalized by the end of 2009
Analysis
Believing that China's rapidly growing middle class would develop a huge appetite for newspapers, the government encouraged the building of a number of newsprint machines. This was back in 2002-2006 when Russian spruce logs did not carry nearly the duty they do now (i.e. 15 euros/cubic meter). The higher duties have greatly increased the cash costs of producing a mt of standard 45 gsm newsprint. Unfortunately demand did not increase as fast as was hoped and it became apparent in 2008 that the country had a surplus of 600,000 mt/year. Exports helped a little but not enough to keep all the mills running full time.
Norske Skog is Europe's largest newsprint producer and has been having to curtail capacity to try and balance out demand. Prices have suffered and profits have been slim to none at all. It had been hoped that their two Chinese mills - one in Shanghai and the other further up the coast near Zhaoxian would be profitable and make up for Europe's lack. However, Norske Skog now has been forced to bite the bullet and sell their last remaining (Hebei) mill to Shandong Huatai Paper which makes S.H. the country's largest newsprint producer...in addition to their other business interests.
By way of contrast, the North American market has declined from 12 million st/year in 1999 to 5 million this year and even at that it is said that still another 1 million must come out of capacity to balance demand. Once a balance is achieved it is hoped prices can be increased so that the remaining mills can begin to make a profit.
Dave Hillman consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
