Wednesday, September 10, 2008

Norwegian paper maker upbeat on China

In the past months, some in China may have found that the price of their newspapers have increased a little. Meanwhile, some small and uncompetitive newspapers can no longer be found on the newsstands. What's going on in China's newspaper industry?

One reason is that newspapers have been hit by frequent newsprint price rises. As of Aug 1, newsprint cost 6,100 yuan per ton, up about 26 percent over January, its highest price in five years.

But newsprint producers have benefited little from the price hikes and are still struggling with low profits. In an exclusive interview with China Daily reporter Bi Xiaoning, Terje Engevik, head of Norske Skog in China, provides some insightsway-based Norske Skog is the second largest newsprint maker in the world.

Q: Why have newsprint prices in China shot up in recent months?

A: Mainly because of the rising raw material and energy costs caused by soaring domestic demand. A large portion of recycled fibers from Old Newspapers in China relies on imports and there was a tremendous expansion in new paper capacity in China over the past years.

In 2000, about 2 million tons of old newspaper was imported by China, and the number is likely to double in 2008. About two-thirds of this comes from North America. However, over the same period, the newspaper consumption there sharply declined. The annual consumption of newspapers in North America fell from about 13 million tons in 2000 to less than 8 million tons this year.

So the fall in supply of recycled old newspapers in North America and the increasing demand in China and other emerging markets like India have resulted in rising fiber prices.

Q: In August, the price of newsprint was raised from 5,800 yuan per ton to 6,100 yuan per ton. Was this price increase triggered by the Olympics? What will be the trend post-Olympics?

A: Until the end of July, newsprint demand in China rose about 9 percent over the corresponding period last year. The reason may be that local newspapers were trying to build up enough stock to ensure good coverage of the Olympics and more daily supplements were published as a result of the event.

Paper makers have been forced to increase prices to meet the increasing raw material and energy costs. Reviewing the financial statements of paper makers, you will find the profitability improved a little in the second quarter of this year, but is still down compared with previous years.

As for the future trend, it's hard to predict what the demand for newsprint will be in China post-Games. In 1988, newsprint demand in Olympic host South Korea continued to rise sharply even after the Games.

Q: If the price hike of ONP and newsprint in China partly came from shrinking newspaper consumption in North America, as you say, what led to the decrease of US newspapers' circulation and volumes?

A: To some extent, free distribution of news - also by some free newspapers - has made things difficult for traditional newspapers.

I believe Chinese publishers can learn from their overseas counterparts. Publishers must pay more attention to quality. It's quality that will help publishers to retain their market share, not low cover prices.

For example, in Norway, the retail price of a Saturday edition of a financial daily is equivalent to 33 yuan. So it baffles me that some thick newspapers in China sell for as low as 50 fen.

Q: Is it possible to find some alternative to recycled fibers from North America to make newsprint in China?

A: The alternative would be to produce virgin fibers from wood, in a process that requires substantially more electricity. But China is short on suitable wood fibers and electricity costs are high here. So we prefer to use recycled fiber in China.

With stable supply and good quality, American old newspapers are the favorite material for us and other Chinese paper makers.

The price pressure can be somewhat alleviated if we can get enough quality raw materials from the domestic market. Unfortunately, there isn't a very efficient newspaper recycling system here in China yet and the quality is not satisfactory.

Q: Norske Skog entered the Chinese market in 1998. What progress has it seen in China's paper industry in the past 10 years?

A: Ten years ago, there were many paper factories in China, but most were small companies that were low on efficiency and high on pollution. With the reshuffle in the past years, the Chinese government has closed down uncompetitive small paper mills and optimized the market.

Now Huatai Paper Group and Shandong Chenming Paper are all listed paper giants.

As a multinational paper maker, Norske Skog has brought advanced technology and management systems to China, especially in the quality and environment protection aspects. To some extent, we may be a benchmark for the Chinese paper sector and have helped improve performance and efficiency.

Q: What's the difference between China's newsprint industry and those overseas?

A: China is still a promising and growing market. From 1998 to 2005, the newsprint demand in China saw double-digit annual growth. In 2007, the demand was still high, with an 8 percent year-on-year increase. It reached 9 percent in July. I believe the trend will last for many years to come.

Source: China Daily

No comments: