Asia Pacific: biding time: while the "glory days" are gone for Asia Pacific, papermakers are hoping better times lay ahead.

The global economic slowdown is affecting most Asian papermakers more than they would like to admit; however; hiding time is becoming a common tactic, with papermakers waiting out the tough times for the brighter days ahead.

The pulp and paper industry remains a very traditional industry, with little change in style or substance over the last decade. While the beginning of 2000 showed some signs of recovery from the previous year's continuing economic downturn, the fourth quarter of 2000 was one that most papermakers would rather forget, as it set the path forward into bleak looking 2001. When 2001 arrived, it came as anticipated with downtime, restructuring and decreasing profits being announced in most countries across most grades. Japan and Korea are in dire financial situations and the downturn in the U.S. economy is creating problems across the region.

In the Asia Pacific pulp and paper industry, cross-border trading remains a tricky business. Tariff rates are due to be abolished in the region represented by the Association of South East Asia Nations (ASEAN) in accordance with the Asia Free Trade Agreement (AFTA) in 2004. Today, however, these tariffs still make potential markets and allies more like enemy territories, with different trade laws, different currencies and different languages in each nation, the "little guys" can survive, but the comparative ease of business in the European Union and North America remains in the distant future. Other key problems such as political instability, unstable economies and undervalued or low-value currency in many Asian nations--are all part of a melting pot of challenges.

Political instability rocked Indonesia, the Philippines, Pakistan and, to a lesser extent, India and Thailand during 2000 and 2001. Malaysia is the brightest spark in the Asia Pacific, although China and Vietnam are continuing along their fast-track paths into growing economies.

Taiwan, Korea and Japan remain in a more mature stage, with mergers and acquisitions and asset specialization in full swing. Other countries, such as Australia and New Zealand, remain steady.

AUSTRALIA ON TRACK

Australia's relatively small population and large size may make it seem like a logistical nightmare, but considering that 92% of the population live in the seven biggest cities, mills are few and strategically placed close to fiber sources. The big news in Australia this year has been Visy Paper's green-field mill nearing completion in Tumut, New South Wales. It is the first green-field mill in Australia in 20 years. Other news includes the sale of PaperlinX Limited's Australian Paper Plantations to Hancock Victorian Plantations Pty Ltd. for AUD 152 million (US $77 million) in August this year. This follows PaperlinX's announcement in June that it was expanding its North American paper merchanting business with an agreement to acquire Coast Paper; an independent Canadian merchant of high performance printing and office papers. Non-wood fiber ventures made the news in 2001, including announcements for bagasse and sugar cane plants in Queensland in the country's north. Whether these will be built has yet to be seen.

BANGLADESH UNCERTAIN

Bangladesh has seen little change in papermaking over the years. While the four state-run mills are the largest in the country, they account for only a fraction of total production. The many small mills throughout the country--similar to those China and Vietnam are now starting to eradicate--make up the balance. Economically, Bangladesh has seen a steady real GDP growth over the past few years and in 2000 interest rates began returning to pre-crisis levels. Still, the continuing decline of the Taka compared to the U.S. dollar is a continual worry since it causes mill operating costs to soar much faster than profits.

CHINA ON THE SLOW

With annual paper and board consumption of 37 million metric tons, China is the world's second largest paper and paperboard market after the United States. Despite fast production growth of 8.7% per year in the 1990s, China is still a major importer of paper and paperboard. Local production is mainly low to medium quality; higher quality products are usually imported. Still, imports of paper and board were down 8.5% from 1999 to just under 6 million tonnes, based on increased domestic production and better quality.

In 2000, China's paper and paperboard output reached nearly 31 million metric tons, up 6.5% over the previous year. The most positive news for China's pulp and paper makers in 2000 was the increasing forest area in China, with the government placing full focus on a long-term sustainable fiber source.

HONG KONG MIXED

While things were looking up in Hong Kong economically in 2000 and 2001, the paper industry again managed to break ranks, with mixed results in both paper and pulp trade. In its only domestic grade, packaging, Hong Kong's production increased to 185,000 metric tons in 2000, although the figure is nowhere near 1996's high of 372,000 metric tons. Interestingly, at the same time production rose, capacity decreased to 350,000 metric tons. Hong Kong showed evidence of stockpile reduction, with zero production and exports outstripping imports. After a dreadful 1999 and an inconsistent 2000, the good news for Hon Kong papermakers is that consumption is once again on the rise.

INDIA PERKS UP

After nearly four years in decline, India's domestic paper industry showed strong indications of coming out of the vortex of depressed demand and low prices during the second half of 2000. India primarily benefited from a spurt in domestic demand directly linked to economic performance. With the economy coming out of recession, the domestic demand for paper was once again on the rise.

High shipping rates and poor paper quality may dampen Indian papermakers' hope for a successful export trade. Using primarily non-wood fiber and recycled fiber means that the majority of Indian paper does not meet international demands in printing and writing grades. Still, it's not all gloom--Emami paper mills, the only fine newsprint manufacturer in eastern India, has plans to grow. The company plans to push installed capacity from the current 44,200 metric tons to 60,000 metric tons/year by the end of 2002-2003.

INDONESIA: TOUGH TIMES AHEAD

Indonesia was perhaps the hardest hit country of all in the 1999 Asian crisis and its woes were not relieved in 2000. Political instability continues to create a mass of confusion and the shaky dealings of the previous government still need repair. Many Indonesian paper companies remain in dire financial straits and the independence movements in various provinces and reclaimed land has left far fewer trees available for pulp. The rate of clear-cutting and the lack of plantations in Indonesia will so on be apparent, with a distinct lack of papermaking raw material. This may also prove to be a problem for the proposed pulp mill to be built in South Kalimantan later this year.

Asia Pulp and Paper (APP) has dominated regional headlines all year, the latest news being that the Jakarta Stock Exchange has suspended trading in shares of Asia Pulp & Paper Indonesian subsidiaries Indah Kiat Pulp & Paper and Tjiwi Kimia after they flailed to deliver year 2000 audited financial reports.

JAPAN: COMING TOGETHER

The pulp and paper industry in Japan has been promoting mergers and acquisitions such as those in North America and Europe. Mitsubishi Paper and Hokuetsu Paper merged in December 2000 and others, such as Nippon Paper, announced plans to join forces with other Japanese paper companies. This year has proven to be worse than 2000 in Japan. To maintain profit margins, paper companies have been restructuring, the latest announcement coming from Oji Paper in its corrugated container business. Oji announced in June the unification of the Corrugated Container Division of Oji Paper's Packaging Company with Seven Oji Paper Group Corrugated Container companies (100% owned by Oji Paper).

CHANGES NEEDED IN KOREA

Korean papermakers were anticipating a long and difficult struggle toward profitability at the end of 2000. The country's economy was looking very bleak with the government liquidating many bankrupt companies and the unemployment level reaching record highs. However, South Korea maintained a healthy GDP growth rate compared to other developed countries, so it seemed that the survivors would be those who could best restructure and manage debt. With continued financial crisis throughout Korea during 2001, the waiting game is taking its toll, with some players likely to go under. In order to stay on top, Hansol Paper recently sold its 33% stake in the successful Pan Asia Paper Company venture to partners Norske Skog (Norway) and Abitibi-Consolidated (Canada).

MALAYSIA GROWS

Malaysia showed the fastest recovery from the Asian crisis of 1997. With five main players, the Malaysian pulp and paper industry remains small due to the country's relatively small population. The industry is currently going through a large capacity increase with Muda Holdings, Pascorp Paper Industries and Genting Sanyen Industrial Paper upgrading their paper machines to increase capacity by more than 250,000 metric tons/year and two new mills online in 2000. Most of the papermakers in Malaysia use recycled pulp due to the lack of wood fiber in peninsular Malaysia. During 2001, increased demand for recycled fiber led newcomer Malaysian Newsprint Industries (MNI) to increase Malaysia's recovery rate of paper and paperboard through a cooperative project with the government. The Malaysia Pulp and Paper Manufacturers Association has been experimenting with annually maturing plants in order to satisfy short-term fiber needs.

NEW ZEALAND ON THE LEVEL

While the 1997-'98 Asian financial crisis had a severe effect on the New Zealand economy, the forest products industry bounced back to life in 1999-2000 on the back of a continually depreciating New Zealand dollar against the U.S. dollar. This has led to a stable New Zealand pulp and paper industry. However, New Zealand's major players turned in poor financial report cards in the second quarter of 2001. Carter Holt Harvey, for example, recently announced a NZD 20 million decrease in profits from the first quarter of 2001, and a massive NZD 90 million decrease from the same period in 2000.

PAKISTAN GLOOM

Political instability, slow economic growth, unsustainable debt, and corruption are some of the many challenges facing Pakistan. The economy remains fragile and the government needs to undertake urgent, fundamental reforms to promote economic recovery, maintain structural reforms, and pursue macroeconomic stability. The World Bank has directed the country to develop a new trade and industrial policy that would include phasing out the existing paper industry, which is internationally un-competitive.

PHILIPPINES--BAD YEAR, GOOD MONTH

Most of 2000 was glum in the Philippines, with total paper and board production down 16.1% to 750,000 metric tons. However, December 2000 was a very good month: the paper and paper products industry had the highest year-on-year growth among all the Philippines industrial sectors in December, registering a 43.2% increase in production volume. During the same period, paper and paper products accounted for 20.5% in value of net sales. The Philippines National Statistics office also quoted paper and paper products capacity utilization at 87.2%. Similar figures have been recorded during 2001, with political issues apparently having little affect on the paper industry or the country's economy as a whole.

SINGAPORE: HQS ONLY

Singapore is no longer a papermaking country. The country's last paper mill relocated to Malaysia in 1999/2000, leaving Singapore as an administration and management location. Even in that arena there has been mostly bad news. For Asia Pacific Resources International Holdings Ltd (APRIL), headquartered in Singapore but with major operations in Indonesia, it seems that trouble with stakeholders is brewing. For the quarter ended March 31, 2001, APRIL reported a net loss of US$ 25.5 million, compared to a profit of US$1.7 million during the first quarter of 2000. The company reported that, while production volumes increased, new revenues were affected by sharp year on year declines in the average realized prices for the company's pulp and uncoated woodfree paper. To add to APRIL's woes, the New York Stock Exchange has notified APRIL that its shares have fallen below the continued listing criteria requiring an average price of at least one U.S. dollar.

TAIWAN LOOKS TO CHINA

Taiwanese pulp and papermakers began looking for other ways to remain competitive in the global market in 2000 besides increasing production. However, with little support from the government, not much has changed. Taxation on mergers and acquisitions halted any activity in that arena, and continued high levels of exports into Taiwan have added to papermakers' frustrations.

Instead, many Taiwanese companies were looking to the Chinese market for reprieve. Long Chen Paper, having sold its tissue paper division to Procter and Gamble for US$ 115 million in August 1999, is focusing on growing in China with a new corrugating machine in Wushi, China. The machine will produce about 100,000 metric tons/year and should be coming online in mid-2000.

THAILAND RECOVERING

The Thai pulp and paper industry has suffered from an economic crisis that began in 1996 and continued until 1998. The recession resulted in a five-year halt in the development of the paper and board markets in Thailand. While 2000 saw Thailand growing again as it did in the early 1990s, overcapacity created during the early 1990s continues to hinder real growth. This year has shown that Thai papermakers are looking outside their own borders, with international cooperative investments announced in China, Indonesia, and Malaysia.

VIETNAM

Most paper machines in Vietnam remain very small and mills inefficient, causing copious amounts of pollution. While the majority of pulp and paper production in Vietnam comes from state-owned mills, there are also a large number of small, privately-owned mills. One of the first international companies to set up operations in Vietnam was the Singapore-based New Toyo Holdings, which opened a hygiene paper mill in Vietnam's south in late 2000. Vietnam's large population and increasing global awareness means that, like China, it is a country to look out for.

ASIA PACIFIC: PAPER & BOARD OUTPUT, TRADE AND CONSUMPTION

1,000 metric tons
                       1996      1997      1998      1999

PRODUCTION           83,396    86,618    86,707    91,370
Newsprint             7,129     7,399     7,983     8,341
Pr/Wr                22,645    23,484    23,434    25,678
Pkg                  39,820    40,961    41,701    45,930
Other (tissue)       13,802    14,774    13,589    11,421

IMPORTS              16,274    18,063    16,817    18,234
Newsprint             3,118     3,539     3,050     2,867
Pr/Wr                 4,018     4,398     4,231     5,121
Pkg                   7,523     8,561     8,063     8,525
Other (tissue)        1,615     1,165     1,473     1,721

EXPORTS               8,452    10,955    12,773    13,441
Newsprint               411       728     1,546     1,333
Pr/Wr                 1,838     2,909     3,928     4,629
Pkg                   5,022     6,364     6,252     5,697
Other (tissue)        1,181       954     1,047     1,782

CONSUMPTION          91,217    93,637    88,750    96,164
Newsprint                98    10,210     9,486     9,875
Pr/Wr                24,825    24,883    23,737    26,170
Pkg                  42,321    43,158    43,512    48,758
Other (tissue)       14,236    15,386    12,015    11,361
Per Capita               29        30        29        31

1,000 metric tons               Annual % change
                       2000     96-00     99-00

PRODUCTION           95,665       3.7       4.7
Newsprint             9,452       6.7       8.5
Pr/Wr                26,604       4.4       3.6
Pkg                  48,695       5.6       6.0
Other (tissue)       11,314      -4.5      -0.9

IMPORTS              17,454       1.8      -4.3
Newsprint             2,862      -2.1      -0.2
Pr/Wr                 5,034       6.3      -1.7
Pkg                   8,357       2.8      -2.0
Other (tissue)        1,201      -6.4     -30.2

EXPORTS              12,773      12.8      -5.0
Newsprint             1,075      40.4     -19.4
Pr/Wr                 4,598      37.5      -0.7
Pkg                   5,282       1.3      -7.3
Other (tissue)        1,818      13.5       2.0

CONSUMPTION         100,348       2.5       4.4
Newsprint            10,839       2.6       9.8
Pr/Wr               270,411       2.2       3-3
Pkg                  51,771       5.6       6.2
Other (tissue)       10,698      -6.2      -5.8
Per Capita               32       2.6       3.2

This table includes all countries in the Asia Pacific, Pakistan
eastwards, that produce significant tonnages.

Source: National pulp and paper industry associations, trade sources.

Diana Ward is a contributing editor to Solutions! magazine. She is the former editor of PIMA'a Asia Pacific Paparmaker.