Emerging India: India is a growing destination for recovered fiber.

The export picture looks sharp, encouraging and very bright. nd the Indian market, though small in size and with unique challenges, is surely growing and worthy of our attention.

I will break my presentation into three parts: 1.) the general trends in our industry and why export markets are important to us, 2.) the factors fueling growth in the export markets and, lastly, 3) the Indian market as a case study of an emerging export market.

But before I start, let me take a moment to introduce my company.

CellMark is the world's largest marketing company of pulp and paper. In 2005, our revenues were in excess of $1.6 billion, and we moved more than 4.3 million tons. While our tonnage and dollar amounts are impressive, the fact we are most proud of is the diversity of our markets. CellMark covered more than 107 countries last year. In the context of today's topic, you can say we're surely "dialed in" globally.

INDUSTRY TRENDS

U.S. paper and paper board production has been shrinking. After peaking in 1999, domestic production is under pressure and declining. This is mainly the result of consolidation in the industry and many shutdowns.

U.S. consumption of recovered paper has been on the decline, as well. Here, again, after peaking in 1999 to almost 37 million tons, it had dropped to a little less than 34 million tons last year.

U.S. recovery of scrap paper, on the other hand, is on the rise. Ten years ago, the United States recovered 43 million tons of scrap paper, and last year that number reached 51 million tons.

U.S. exports of scrap paper are surely on the rise, as well. Ten years ago, the United States exported 8 million tons. Last year, that number skyrocketed to almost 16 million tons. Clearly, U.S. exports of scrap paper are on the rise. Future growth in our industry is surely overseas.

Let us look at the factors fueling growth in our export markets.

FACTORS FUELING EXPORT

The migration of manufacturing to offshore locations has been the most pervasive trend witnessed throughout the United States in recent times. Entire industries have relocated their manufacturing operations from the United States to foreign countries. Such a fundamental shift has resulted in, among other things, the expansion of the packaging industry abroad.

As countries in Eastern Europe, Latin America and Asia bring down barriers to free trade, we are witnessing increased business development in these regions. Free flow of capital and resources is resulting in increased production and consumption of paper and paperboard in these markets.

With increased international trade, many emerging markets are seeing an increased affluence in their societies. Paper consumption in many ways has a direct correlation with this affluence. Per capita consumption of paper in many of the export markets has increased during the past 10 years. And the good news is that there is still room for more growth. For example, the per capita consumption of paper in India is currently at about 6.5 kilos, or 14.3 pounds, and is projected to grow to 8.5 kilos, or 18.7 pounds, by 2010. Compare this with the per capita consumption of paper here in the United States, which is currently more than 300 kilograms, or 660 pounds.

Now, let's take a brief look at the Indian market.

A GROWING MARKET

With a population of l billion, India is drawing the attention of the world. Of these 1 billion people, more than 700 million are younger than 35. This group of people will surely have a long-term impact as consumers and contributors to the world economy in the upcoming years.

India's GDP growth this year is estimated at 7.5 percent. It has been the second fastest growing economy in the world, the fastest being China.

There are more than 600 paper mills in India today. However, it is estimated that almost 150 of these mills are considered "sick," meaning inoperative.

The average size Indian paper mill can produce from 30 to 60 tons per day. Unlike many other markets, the Indian market is characterized by small mills. Whiile more than 300 mills in India are purchasing imported scrap paper, the country doesn't have a single machine that has a capacity of even 500 tons per day.

Despite India's recent growth, the Indian government has a long way to go in providing an efficient infrastructure. Notwithstanding the government's current efforts, it will take considerable time before we see efficient power and transportation net works, which are the foundations of any successful industrial development of a country.

The Indian paper industry is forecasted to grow at about 7 percent per annum throughout the next few years. It is interesting to note that while the Indian paper industry is growing steadily, we have not heard of any significant commitment of resources by multinationals in our industry to set up shop in India. Nearly all growth will be "home-grown."

The current state of domestic recycling in India is miniscule and quite unorganized. So, with a limited supply of domestic scrap paper, the Indian mills look to imported scrap paper to supply their mills.

Where does the imported wastepaper come from? Indian mills first draw fiber from the closet region, the Middle East. The next stop is Europe, which has become a very regular supplier of secondary fiber to India, especially to the duplex and newsprint segments. Once they have exhausted local, regional or European sources, then Indian mills come to the United States for their fiber needs. U.S. scrap paper is the most expensive imported secondary fiber for Indian mills.

The Indian market is unique in that you can find a customer for almost every grade of scrap paper. To give you an example, last year, CellMark sold 48 grades of secondary fiber to India. If it is priced right, there is a user for any grade of scrap paper in India.

Unlike some other export markets that buy significant quantities of scrap paper, but in only a handful of grades, the wide network of small mills in India provides a unique opportunity to sell almost any grade.

Thus, given the fact that the Indian market will continue to grow, the real question is how best to access this market and what are a few of its unique challenges.

This is where you may decide to either sell directly to Indian mills or to use a marketing company to achieve.

Of course, my personal bias notwithstanding, I will now list a few of the challenges and why using a marketing company for India is a preferred option.

BENEFITS OF BROKERING

Terms of sales to India tend to be on either DP or DA basis (in other words, "open terms"). Many mills are privately held, and their credit information is not easily available. Selling on secured payment terms is still an elusive goal in that market.

In addition to the small size of most individual mills in India, they are scattered throughout the country, making covering the market quite a challenge. Of course, regardless of their size, nearly all mills prefer that the supplier visit them and understand their specific needs and requirements.

Quality expectations take on a new dimension in our business when dealing with the Indian market. Often times, the Indian mills buy many grades for applications that we are not familiar with. For example, most (if not all) SOP (sorted office paper) sold to mills in India is resorted and used for making printing and writing paper (unlike its usage here, which is mostly as a direct-entry material in the making of tissue and toweling).

Long distance claims resolutions are something we all dread, but they are an unfortunate reality, even for those of us who say that their material is never claimed. While technology has surely made our world very small, and we can communicate with each other with relative ease, when it comes to settling claims, don't kid yourself about being able to easily settle claims from halfway across the world. Bear in mind, that the infrastructure and local laws in India being what they are, when claims occur, often it is difficult to move material from one mill to another. Such lack of options make this process more challenging than it would be in a different market. The expense of traveling to India just to settle any quality claims is a significant deterrent even for the most experienced companies.

Every market has its share of unexpected issues that come up in the course of doing business. However, having done business in India for as long as we have, it appears that dealing with unexpected issues have become the norm in that market, rather than the exception.

Be it, (1.) switching shipments mid-stream because the original customer runs into a temporary financial crisis, or (2.) delaying shipments because the original schedule is changed by the steamship lines, and now the customer cannot accept more than a few containers at a time, or (3.) because of changing market conditions, the customer decides to change the finished paper he will make, and as such, the material he ordered and that has shipped now needs to be resold to someone else. These are just a few issues that come to mind.

Despite the challenges mentioned, CellMark has been doing business in India for more than 20 years. I have enjoyed doing business there and look forward to the continued growth of the market. For those already doing business there or who would like to explore this market, I wish you the same success that we have enjoyed.

Overall, I would again say that export is where the growth is, and the export picture looks bright.

Editor's note: This feature is adapted from a presentation that Ashu Vyas delivered at the 2006 Paper Recycling Conference & Trade Show.

The author is a vice president with CellMark based out of the company's Corte Madera, Calif., office. He can be contacted at [e-mail].