New Asian capacity may jolt coated freesheet market.

The forecast for 2004 North American coated freesheet demand is for growth of nearly 3%. Coated freesheet will benefit from the surge in direct mail volume and the rebound in miscellaneous commercial printing. Coated freesheet is expected to lose market share in catalogs and magazines to coated mechanical. The lack of growth in subscriptions and the decline of single copy sales continue to hold back growth in magazine paper usage overall. The forecast is for the North American mill seasonally adjusted shipment/capacity ratio to be in the 90% to 91% range for the remainder of 2004. For 2005 it is estimated to be slightly below 90%.

There are no announced major capacity changes scheduled in North America. The increases in China and Spain this year are relatively small and are not expected to significantly increase shipments to North America. Quarterly shipments from China resembled a rollercoaster during the 2002-2004 period. This pattern was probably due to the use of the United States as an outlet for tonnage when new capacity came on stream and was assimilated into markets closer to home.

The situation in 2005 could be a different story. Asia Pulp & Paper (APP) is moving ahead to install a new 700,000 metric tons/year coated woodfree paper machine at Dagang mill where construction work is underway. The machine, reportedly to be supplied by Voith Paper, will have an on-machine coater. The mill has two paper machines, with a combined capacity of 1.1 million metric tons/year of coated and uncoated woodfree paper. The targeted start-up date is early 2005. If this new capacity does come into production as announced, it will exceed the smaller increase in Asian demand. Consequently, a significant amount of this tonnage will be exported to other areas of the world. Manufacturing costs of the new Chinese paper machines are highly competitive (without capital costs).

Oji Paper has altered its plan to build a 1.2 million metric tons/year coated and uncoated woodfree greenfield paper mill in Nantong City, Jiangsu Province. According to the original plan, the first 600 000 metric tons/year coated wood-free PM was due to start up in late 2006. Oji Paper's new plan will include three paper machines. PM 1 will have a capacity of 400,000 metric tons/year of coated woodfree paper. Its startup is planned for 2007. The second phase will include PM 2 with a capacity of 400,000 metric tons/year of coated and uncoated woodfree paper and a sulphate pulp mill. These startups are planned for 2009. PM 3, also with a capacity of 400,000 metric tons/year of uncoated or coated woodfree paper will start up in 2011. The total investment cost is estimated at JPY 220 billion.

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Book publ.        10%
Catalogs           9%
Direct mail       11%
Labels & wraps     9%
Magazines          9%
Misc. comm. Prtg  41%
All other         11%
Total              5.3 million tons

U.S. coated freesheet demand by end use 2004 (metric tons).

Note: Table made from pie chart.

Note: This article is part of a series by Jaakko Poyry Consulting, Tarrytown, New York, USA, a provider of marketing and consulting services. Contact Soile Kilpi by email at [e-mail], or by phone at [phone].