Zhongzhu Group and Yueyang Group: building for the future.

In the April issue of Solutions!, we profiled the rapid growth of the Chinese paper industry. In this article, we take a closer look at two growing domestic Chinese paper companies, the Zhongzhu Group and Yueyang Forest & Paper Group.

ZHONGZHU GROUP

Zhongzhu Group, Guangxi, has 700,000 metric tons/yr of papermaking capacity and 250,000 metric tons/yr of chemical pulp capacity, mostly bamboo and wood pulp. The group is also known as "Bamboo Group."

The company's largest mill is the Shixian Bailu mill in Tumen, close to North Korea and Russia. The mill changed ownership in the summer of 2003. Zhongzhu Group now owns 67% of the mill, with the other owners being the local government and the paper department of the Shixian Korean autonomous region. Zhongzhu is already the owner of Ya'an Paper (Sichuan), Liujiang Paper (Guangxi), Jilin Paper Manufacture (a part of the former Jilin Paper), Shaowu Paper (Fujian), and Yichun Paper (Jiangxi). The "Bamboo Group" has also been in discussions about taking over the Qiqihaer Paper Mill. Zhongzhu has sales offices in 20 provinces, which helps the Shixian Bailu Mill as well. The group's aim is to be the largest paper producer in China in 10 years.

The Shixian Bailu Mill was established in 1936 by the Japanese government during its invasion of China. Today, its capacity is 300,000 metric tons/yr of newsprint and 50,000 metric tons/yr of offset paper on four paper machines. The mill produces 60,000 metric tons/yr of sulphite pulp as well as 40,000 metric tons/yr of groundwood. A 30,000 metric tons/yr CTMP-APMP plant is being installed by Dalian Light Industry. The mill's deinked pulp (DIP) plant products 200 tpd.

Shixian's PM9 is a secondhand newsprint machine from Austria (4.3 m wide, 735 m/min), which will be rebuilt in the near future. PM10 is a new, 200,000 metric tons/yr Metso paper machine that started up in September 2002 (as described in Solutions! in March 2003). It is a SC-B machine but has focused on newsprint production so far. Brightness of the SC sheet has not yet been satisfactory, but this is being improved by a rebuild of the mechanical pulp bleach plant. PM10 was running at 1420 m/min when we visited the mill in October 2003.

Shixian's wood supply comes primarily from Russia, while waste paper is sourced from the UK, Japan, United States, Canada, and Russia. Wood supply is becoming scarce. The next paper machine (planned for 2007) will require wood supply from poplar and larch plantations, which occupy an area of 180,000 hectares. The target is to generate 2.2 million cubic meters of wood per year.

YUEYANG FOREST & PAPER GROUP

Wang Xiang, president of Yueyang Forest & Paper Group, is proud to tell how Yueyang has built a modern 200,000 metric tons/yr LWC machine, which started up in the summer of 2003. The new machine, PM8, produces 80,000 metric tons/yr of LWC, 80,000 metric tons/yr of newsprint and 40,000 metric tons/yr of offset papers. Total investment was Yuan 1 billion. People's Daily is one of the new machine's important customers.

The Yueyang Forest & Paper Group was created by the merger of several companies with Yueyang Paper and the creation of a forestry operation. It is a state owned company but has begun a privatization process. At the end of 2003, state ownership was 84%, with the remaining shares sold on Chinese stock markets. Mr. Wang is one of the shareholders. Yueyang is among the 10 largest paper and board suppliers in China, with capacity of 550,000 metric tons/yr. It has 20 sales offices in China and has started up international operations with offices in Western Asia and Africa. It will expand to the United States and Canada during 2004.

The company has mills in Yueyang, Yuanjiang, Xiangjiang, and Huaihua, all in Hunan province, all of which are expanding by the following amounts:

* Yueyang

300,000 metric tons/yr of paperboard (2006)

* Yuanjiang

100,000 metric tons/yr of reed pulp (2004)

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* Xiangjiang

100,000 metric tons/yr of packing paper (2005)

* Huaihua

300,000 metric tons/yr of wood pulp (2005)

The expansions are based on huge growth prospects in the Chinese market. Yueyang feels that the official growth figures are too cautious. The Chinese government expects paper and board demand in China to reach 60 million metric tons/yr by 2010; Yueyang believes there will be an additional 10 million metric tons. In addition, many small mills will be closed. Estimates are that 30 million metric tons/yr of new capacity will be needed by 2010 -4.5 million metric tons a year!

PM8 is Yueyang's largest investment so far. It consists of Metso Paper's LWC machine and DIP plant, as well as an APMP plant from Andritz. This project was planned and engineered by Changsha Design Institute, one of the largest engineering companies in the Chinese paper industry. Changsha is an expert in coated paper and board technologies.

The Chinese government (State Development & Innovation Committee) supports the expansions through low interest or no interest financing. Yueyang Paper Co. has a US$ 700 million financing agreement, and they have raised an additional US$ 100 million from the Shanghai Stock Exchange. (As part of a move to slow economic growth, the Chinese government is temporarily suspending the financing, as of June 2004.)

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Reed is Yueyang's main raw material, but the company is shifting towards wood Yueyang's new forestry research center was under construction in October 2003. The research facility and laboratory employs 60 people and has a large pilot plantation.

Raw material supply will become more critical and the companies that control the raw material will be the ones that survive. Wood from captive plantations offers 30% more profit, according to the mill. Using 30-45% APMP (BCTMP) in fine paper furnish provides the company with an important cost reduction.

Yueyang has begun forest plantations in Hunan and Hubei. The plantations include Italian poplar, which is good for BCTMP pulp. In 2004, the company will plant 35,000 hectares (ha), and another 30,000-40,000 ha a year over the following 3 years. Half of the plantings will be poplar, 25% birch, and the remaining 25% masson pine. Poplar reaches a 22 cm breast diameter in 5 years. Yueyang's target is to harvest 1.5 million cubic meters/yr year of wood from its planned 120,000 ha of wood plantations to feed the Hui Hua pulp mill in western Hunan, where a new 300,000 metric tons/yr pulp mill will start up at the end of 2005. Part of the wood will be used as high-yield BCTMP or APMP pulp in the Yueyang Mill.

Yueyang Forest & Paper also manufactures paper machines. Its engineering subsidiary has received four board machine orders--a maximum of 4.2 m wide, low speed, low capacity machines. The company relies on foreign suppliers for advanced machinery.

ZHONGZHU GROUP STATISTICS

Mill            Site      Capacity  Grades

Liujiang        Liuzhou,  100,000   Pr & Wr
Paper           Guangxi   mtpy
Yichun Paper    Jiangxi   35,000    Book papers
Mill                      mtpy
Ya'an Paper     Sichuan   60,000    Pr & Wr, specialties
                          mtpy
Jilin Paper     Jilin     140,000   Newsprint (LWC
Manufacturing*            mtpy      machine coming)
Shixian Bailu   Jilin     350,000   Newsprint, SC-B,
Paper                     mtpy      offset, wood pulp
Shaowu Paper    Fujian    30,000    Specialties,
                          mtpy      wood pulp

Total 715,000 mtpy, pulp 250,00 mtpy

* Zhongzhu Group is finalizing the 180,000 metric tons/yr LWC line at
Jilin, which previous owner Jilin Paper was not able to complete. After
the LWC machine startup at the end of 2004, the company will have a
total capacity of 900,000 metric tons/yr.

YUEYANG FOREST & PAPER GROUP STATISTICS

Mill                Site            Capacity            Grades

Yueyang Paper Mill  Yueyang, Hunan  400,000 mtpy        Newsprint, LWC,
                                                        chemical pulp
Yuanjiang           Hunan           100,000 mtpy        Offset paper,
                                                        containerboard,
                                                        reed pulp
Xiangjiang Paper    Hunan           70,000 mtpy         Packaging paper
                                    100,000 mtpy        and paperboard
                                    ongoing expansion
Huaihua Pulp        Hunan           Greenfield project  Chemical pulp,
                                    300,000 mtpy        BCTMP

Total 57,000 mtpy

IN THIS ARTICLE YOU WILL LEARN:

* The growth strategies of two leading Chinese paper companies.

* New paper machines being installed and planned.

* How the companies plan to develop new sources of fiber.

ADDITIONAL RESOURCES:

* "China on a hot streak with larger scale, new mills," by Hannu Oinonen and Nie Xiaorong, Solutions!, April 2004. Product Code: 04MARSO24 (Enter Product Code on www.tappi.org search engine to access article).

* "Tissue: a global tour," Solutions!, March 2004. Product Code: 04MARSO28.

* "China's paper industry: Entering the WTO era," by Hannu Oinonen and Nie Xiaorong, Solutions!, March 2003. Product Code: 03MARSO28.

ABOUT THE AUTHORS:

Hannu Oinonen (left) is an economist, engineer, and independent market and technology researcher based in Finland. He has carried out extensive research in Asia and is the co-author of several reports on the Asian paper industry. He can be reached at [e-mail].

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Nie Xiaorong, Ph.D, is a professor at Nan Chang Science and Technology University in Jiangxi province. She completed her post-graduate degree at the University of Helsinki, Finland.