market issues
been shut down, including Shaanxi Aohui Paper (60,000 tonnes per year, environmental reasons), Huizhou Fook Woo Paper (capacity reduction by 36,000 tonnes per year due to ownership change and economic and qualitative reasons), Shanghai Potential Paper (qualitative and economic reasons), Shaanxi XiAn Lintong Hangxing (environmental reasons) and Ningxi Meijie (mill removal order by authorities for land use reasons and capacity reduction by about 50,000 tonnes per year as only the two largest PMs were removed to the new site). In addition, several existing producers have closed their older small tissue PMs after starting up new larger PMs. Good examples of such companies are C&S Paper, Ningxia Bauhinia, Shengda Group Sund Paper and Henan Luohe Yinge. WHAT THE FUTURE HOLDS Now the main questions are: will tissue capacity closures continue at the same rate or even accelerate as in the past few years and will these closures substantially reduce the overcapacity? We believe that the Chinese government will still continue its restructuring programme, and there are still a lot of small tissue mills which cannot fill the criteria for environmental protection and/or energy efficiency set by the government, which means that mandatory closures will continue in 2014-2015. The overcapacity situation and tight competition are likely to cause problems for some existing mills and we are likely to see closures for economic reasons in the coming few years, but it is difficult to estimate how many producers and mills will be hit by competitive troubles. Our estimate is that the TISSUE WORLD November / December 2013
closures will probably continue in 2014-2015 at about the same level as in 2012-2013, but it is possible that this is a conservative estimate when looking at the trend since 2008. But even if closures accelerate from the level of 400,000450,000 tonnes per year to 500,000-600,000 tonnes per year, their effect on the demand/supply situation is not decisive and certainly not enough to counterbalance all the new projects coming on stream in the next couple of years. Assuming the 2012-2013 closure rate continues, the current outlook is that the net capacity change will be close to 1.0 million tonnes this year, about 1.5 million tonnes in 2014 and again close to 1.0 million tonnes in 2015. Additional closures could improve the situation, but only marginally. Major project delays and postponements would be needed to really improve the situation. So the ball is in the suppliers’ court, including the largest players with massive investment targets. Neither the Chinese nor the global market can absorb all of the announced capacity, so my message to the Chinese companies is simple: please reconsider your expansion time schedules, otherwise there is a major threat that margins will collapse radically and an otherwise attractive and strongly growing tissue business in China will be ruined by the excessively ambitious growth targets of individual suppliers! Esko Uutela, principal, tissue, works out of RISI’s EU consulting office close to Munich, Germany, and can be reached at: Tel: +49-8151-29193 or Email: euutela@risi.com