China impact outlined.

David Clapp, senior economist with Resource Information Systems Inc. (RISI), Bedford, Mass., offered attendees of the Paper Stock Industries (PSI) Fall 2003 Conference his company's views on the impact the Chinese paper industry is having on the world paperstock market.

In his presentation titled "Chinese Capacity Expansions: Impact on North American Markets," Clapp outlined the changing dynamics of the Chinese paper industry. One key point Clapp noted is that China is no longer the importer it once was for graphic-quality paper. As an example, he said North American suppliers have fewer opportunities, as Chinese producers are meeting a larger percentage of the demand.

Meanwhile, Clapp said, opportunities for North American paper packaging producers are also diminished. Recycled-content grades are displacing kraft liner. Also, more broadly, there is less demand for packaging in the U.S. in light of rising imports of Chinese merchandise into this country.

"China is now the leading destination for U.S. recovered paper exports," Clapp noted. The availability of high quality North American supplies is seen as crucial to the Chinese paper industry. Meanwhile, Chinese demand is a major factor in supporting higher U.S. recovered paper prices.

Along with recovered fiber, market pulp demand has been positively affected. However, Clapp added, "Suppliers outside of North America have been primary beneficiaries of rising demand."

World recovered paper usage is expected to grow by 16 million metric tons by the end of 2005. While world demand will increase, Clapp said that almost 30 percent of the increase will come from new capacity from China.

Concluding his presentation, Clapp noted that Chinese capacity growth will have a strong influence on fiber markets during the next two years. In addition to recovered fiber demand, China will account for almost 40 percent of the growth in world marketpulp demand.

Another recovered paper inventory build-up ahead of massive capacity investments in China is most likely yet to come. This move will be joined by stronger true consumption as demand in North America begins moving forward, pending a recovering economy.

Initially, a weak supply response will give prices plenty of running room. However, he said, "Overcapacity and low operating rates, especially in China, will rein in prices."