SHANGHAI, June 4, 2015 (RISI) - China's tissue capacity may rise to around 10.44 million tonnes/yr by the end of this year, up by 10.6% from 9.44 million tonnes/yr in 2014, according to the latest statistics from the China National Household Paper Industry Association (CNHPIA).
However, overall operation rates will dip to around 76%, down from 78% in 2014, because of oversupply, CNHPIA Vice Secretary General Zhang Yulan said at the China International Disposable Paper Expo.
The event rolled out last week in Shenzhen city, Guangdong province.
The association stressed the Chinese market can only handle some 500,000 tonnes/yr of net new capacity each year.
However, annual increases in the past several years have surpassed that, resulting in the current overcapacity issue.
And more machines are still coming online. The CNHPIA's statistics indicated that the new PMs scheduled to start up this year and in 2016 will have a combined capacity of 3.25 million tonnes/yr.
But Zhang mentioned that there will be more startup delays in the near future because of the present level of supply.
The association anticipates that the Chinese market will keep growing in the long run, as the country's tissue consumption is only 4.7 kg per capita, which is only around the world's average.
Mills down: The tissue sector, which used to have very high profit margins, has drawn in a lot of investment and new players.
But the current market difficulties have forced some mills out of action.
Xiamen Xinyang Paper, a new entry into the sector, started up a 60,000 tonne/yr tissue PM in 2012 at a greenfield mill in Xiamen city, Fujian province.
But the mill has been idle since the end of 2014.
In Guangxi autonomous region, two regional tissue producers also shut down early this year.
Nanning Phoenix Pulp & Paper has a tissue capacity of around 75,000 tonnes/yr and a bleached kraft pulp capacity of 150,000 tonnes/yr at its mill in Nanning city.
Production at the mill was suspended around February.
Almost at the same time, Guangxi Huamei Paper Group, which has several tissue mills with a combined capacity of around 300,000 tonnes/yr in Guangxi, also halted production, reportedly because of a shortage of funds.
Projects delayed: For those tissue makers in operation, the market is tough, and a lot of new PMs are being delayed.
In 2012, Hengan International ordered eight 60,000 tonne/yr tissue PMs, and planned to increase its total tissue capacity to around 1.4 million tonnes/yr by 2015. The first new PM was to be commissioned in 2013.
But last year the firm rescheduled the move, planning that all the PMs will come online by next year, with two in 2014, four in 2015, and the other two in 2016.
It started up one in late 2014 and one in January.
So far, the firm has not announced an updated plan for the other PMs' startups, only saying that it will add new capacity based on the market situation and on its own sales performance.
A source close to the firm said that Hengan is insisting on its policy of not cutting prices, so it will study the market before firing up new PMs in view of the current serious oversupply.
According to some equipment suppliers, a lot of tissue projects have been delayed due to insufficient market demand and finance problems.
A domestic supplier explained that many small firms are trying to grow, but they are short on money in the context of the current weak national economy.
In the meantime, branding is not easy, especially for new players.
Tissue products are fast-moving goods directly targeted at consumers, which is a departure from how the sales of other paper and board grades work.
Baoding in the spotlight: Although the overall market is lackluster, some regional markets provide bright spots.
Mancheng County in Baoding city, Hebei province, is a hub for small tissue producers with a combined capacity of 700,000 tonnes/yr.
Mills there are quite near to Beijing and have long been blamed for regional water and air pollution.
In late 2013, the Mancheng mills were forced to suspend production to help alleviate heavy smog in the region.
In November 2014, these tissue plants were obliged to take downtime again to ensure improved air quality during the Asia Pacific Economic Cooperation (APEC) meetings held in Beijing.
To permanently solve the air pollution issue, the local government in Mancheng is retiring small power boilers at individual mills, and in is working to introduce a central power supply system by erecting new big boilers.
In addition to the efforts by local authorities, many mills there are also upgrading their machinery to meet stricter environmental standards.
Early this year, Hebei Xuesong Paper ordered a new 21,000 tonne/yr PM after starting up an identical one last year.
Hebei Yihoucheng Paper plans to start up a 25,000 tonne/yr tissue PM this year. It fired up its first tissue PM, also with a capacity of 25,000 tonnes/yr, last year.
Equipment suppliers reported that they have received some orders from other Mancheng producers as well.
One explained that mills there are eager to erect new, efficient, cleaner PMs in response to environmental legislation and perceptions.
They are aware of possibly having to quit the market if they cannot manage cleaner production.