China charges ahead in printing and writing papers.

With China's markets for goods and services charging ahead, demand for printing and writing papers is equaling--and in some cases exceeding--the overall economic growth rate. While demand for printing and writing paper in Western markets is static or declining, Asia--led by China--is just the opposite. Growth over the past five years in the Asia-Pacific region has made it the biggest regional consumer of printing and writing papers in the world for the first time.

Total global printing and writing paper demand was approximately 143 million metric tons in 2004, with uncoated fine paper accounting for 38% of that total, newsprint 32%, coated fine paper 18% and magazines 16%. Asia-Pacific accounted for 46 million metric tons of that total, followed by North America at 41 million metric tons and Western Europe at 40 million metric tons.

China is by far the largest fine paper market in Asia, at 12.8 million metric tons in 2004, followed by Japan at approximately 8.4 million tons in 2004. Moreover, China's fine paper consumption is expected to grow at a rate of 5.2% between 2003 and 2008, while growth in Japan for the same period is slated to be just 1%, according to RISI.

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With the increased use in China of office printers, copier and fax machines, preprinted forms and envelopes, and other business communication, 100% wood-pulp based uncoated freesheet demand growth is estimated at 10% per year for the period from 2001-2010, according to Jaakko Poyry Consulting. In 2004, this headlong demand growth was met by 880,000 metric tons of domestic supply and 300,000 metric tons of imported paper.

China's coated freesheet market in 2004 showed estimated demand growth of 8% to 11%. In China, coated fine papers are used in commercial printing, publishing, and direct mail, among other applications. All coated fine paper production in China is 100% wood pulp based. Coated paper capacity is mainly coated freesheet. Local lightweight coated (LWC) production has until recently been marginal. However, the new Jiangxi Chenming mill that started production in 2005 has dramatically expanded LWC capacity in China (see Additional Resources box at the beginning of this article).

With demand and capacity both growing rapidly in China, international trade in printing papers has also picked up. Asia exported 600,000 metric tons of coated freesheet to the United States in 2004, while the U.S. shipped 60,000 metric tons to Asia. Meanwhile, Europe exported 400,000 metric tons to Asia, while importing 30 million metric tons from Asia, according to figures from RISI and Cepifine.

Uncoated freesheet trade flows were also active in 2004. Asia exported 70,000 metric tons of uncoated freesheet to the United States in 2004, while the U.S. shipped 65,000 metric tons to Asia. Europe sent 150,000 metric tons of uncoated freesheet to Asia, while Asia shipped 235,000 metric tons to Europe, according to figures from RISI and Cepifine.

FIBER SUPPLY IN CHINA

China's fiber consumption in 2004 was 50 million metric tons. Growth of printing and writing papers will be based on imported eucalyptus and acacia fibers during the current decade, with much of this expected to be supplied by the massive pulp mills starting up or under construction in South America. Pulp produced in global-scale Chinese pulp mills is still years away from being marketed due to relatively slow development of Chinese pulp wood plantations. The Chinese fiber supply is currently 49% recovered paper (24 million metric tons), 21% wood pulp (10 million metric tons), and 30% nonwood (15 million metric tons).

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PRIMARY GROWTH DRIVERS

China's GDP growth is estimated at 7-8% for 2005. Trends supporting this continued high growth rate include further development toward a market economy, the continued evolution of the Chinese printing and publishing industry, and rapid growth in advertising spending--estimated at 15% per year for printed media for the period from 2002-2008. Business communication is vital in China due to factors such as economic reform, China's entry into the World Trade Organization (WTO), and the rapid growth of the service sector of the economy. The Wall Street Journal recently noted that China's service sector has been significantly underreported in recent years due to the dominance of private companies in the sector.

The total advertising spend for newspaper, magazine, TV radio, outdoor/cinema and the Internet in China has grown from just over US$ 4 billion in 2000 to US$ 8 billion in 2004 and an estimated US$ 12.5 billion in 2007. Growth rates in print advertising (magazine and newspapers) is expected to grow at an astonishing rate of 21% per year from 2005 to 2007. Magazine circulation alone is expected to post a compound annual growth rate (CAGR) of 6.9%, while advertising will grow even faster, at a CAGR of 21.2 percent, according to PricewaterhouseCoopers.

Other factors are driving China's printing and writing paper demand as well. Copy machine sales in China are expected to reach 350,000 in 2005, up from just 150,000 in 1999, according to China Statistics. Direct mail advertising spending is also increasing, though not at the same rate. CAGR for direct mail advertising in China is expected to be 6.3% per year for the period from 2004-2010, according to Icon Group International.

ALAN ROOKS, EDITORIAL DIRECTOR

WHAT YOU WILL LEARN:

* Demand projections for printing and writing paper in China.

* Fiber supply for printing and writing paper in China.

* Demand drivers behind the growth in printing and writing papers.

ADDITIONAL RESOURCES:

* See related article on UPM Changshu mill in this issue.

* "Jiangxi Chenming drives Chinese LWC market," by Alan Rooks, Solutions!, December 2005.

                                    PM
                  2003  2004  2005  ordered  Planned

WFU               140    93   380   250      1480
Single C WF/LWC   370    90   500   350       700
Double coated WF  210   115   850    75      1450

Paper capacity increase in China including uncoated and coated woodfree,
LWC. Source: Jaakko Poyry Consulting.