After consultations with RISI's own expert economists, analysts and editors, we have come up with five Asian companies to watch over the next 12 months. Others that came under close scrutiny operating in the region, and were close to making the list were: Tan Mai, Lee & Man, Nippon and APRIL.
According to our economists, industrial production in the latter part of 2010 improved in China, although it is expected to slow over the course of 2011, but growth will still be strong. India is booming, and it seems is at the start of a paper making boom in particular, despite enormous challenges with raw materials and infrastructure.
One of the major events that has happened recently is the European Commission's proposal to implement anti-subsidy measures against coated fine paper entering Europe from China. This will be an area to watch very closely, in particular in relation to how other countries such as India and Brazil react to the move, and perhaps introduce their own duties. Two of those on our Five to Watch list, APP and Shangdong Chenming look to be affected by the proposed implementation of duties.
ASIA PULP & PAPER (APP)
APP is a company more in the news than not, and for some good reasons; it has a well known plan to be the Number 1 pulp and paper company in the world; it operates in one of the "hottest" regions, Indonesia, when it comes to the NGOs focus on deforestation and climate change; it has a strategy of organic growth that includes the installation of the biggest and very best and in pulp and paper technology: and a strategy of acquisitive growth that will probably put it firmly in the RISI headline news stakes even more regularly next year.
With its bold mission to be the number 1, APP is going to have yet another tough year in 2011 as it comes under even closer scrutiny regarding its forestry and plantation operations in Indonesia. Indeed 2010 saw a ramping up of NGO activity aimed against the company, particularly from Greenpeace, in which it published a series of reports highlighting alleged environmental transgressions, as well as naming some of the major brands around the world that were buying the company's products. APP in return commissioned a series of independent reports, including one by former Greenpeace founder Dr Patrick Moore, refuting the allegations.
But perhaps the real reason this company is one of our Five to Watch for next year is its seemingly unstoppable progress, with new expansions in both pulp and paper too numerous to mention, including the start up of the world's biggest fine paper machine located on Hainan Island, China. One of the main areas of interest is where all the fine paper that APP is producing is going to go as duties have now been imposed in both the US and Europe on fine paper coming in from China. Duties are also now being talked about in Brazil and India as anti-dumping fears in those countries come to the fore.
Another major development on the horizon is APP's aggressive acquisition strategy abroad through its subsidiary Paper Excellence based in Holland which has already seen it buy up four pulp mills, two in France and two in Canada. Could we see APP making an acquisition of a major European or US pulp or paper company in 2011?
Oji Paper has been in the news very recently on the RISI website due to the devastating earthquake that hit north east Japan in mid March. The company's Nikko mill in Tochigi prefecture has seen a halt in production as well as shut downs at a number of its converting plants. But other news and feature articles about Oji Paper can often be spotted in the pages of PPI magazine and the RISI website. Not only is this giant the biggest producer in Japan, but it is also ranked no. 3 in the world according to the latest PPI Top 100, compiled in September 2010.
Oji management in recent times has undergone a major transition in the way the company goes about its business and has undertaken major expansion projects abroad. The company is now seen as a large Asian producer, domiciled in Japan.
One example of Oji's expansions abroad, which have been well covered in the pages of PPI China, is its flagship enterprise in China, the Greenfield integrated Nantong mill in Jiangsu, Shanghai. The mill, with a capacity of 400,000 tonnes/yr of coated woodfree, began commercial production late last year. But the Nantong plan goes further to include a 700,000 tonnes/yr BHKP line at the site, start up which will be in 2013. There are also possible plans for a further two paper machines at the site.
Oji is also expanding into other areas in Asia as well, particularly the south east of the region by way of mergers and acquisitions, wholly-owned projects and partnerships. Other work also goes on in energy efficiency and raising productivity as well as rationalizing distribution via alliances with Mitsubishi Paper and Tokushu Tokai.
Yes, there are challenges ahead for Oji at home, especially since the recent earthquake and tsunami, but it appears to have within it the DNA of a survivor; the company was there at the beginning of the first wave of industrialization in Japan, then after WWII it was part of the post war "economic miracle" and more recently it was among the first Japanese papermakers to venture offshore for both new fiber, and better commercial opportunities. Clearly a company to watch more closely in 2011.
Ballarpur Industries (BILT)
India's place as a papermaking force must not be underestimated. It is experiencing growth in paper consumption into double digits, and in some grades growth is as high as 25%, particularly in the case of containerboard. The country has major infrastructure challenges ahead of it, but it also has a raft of pulp and paper companies imbued with a serious entrepreneurial spirit that will undoubtedly see it overcome the challenges to embrace and develop future opportunities.
One of those companies is BILT, is the largest paper producer in India and Malaysia with a production capacity of close to 1 million tonnes per annum, consisting of woodfree coated and uncoated writing and printing paper. But being the biggest doesn't automatically guarantee a place into the Five to Watch - what is really interesting about BILT is its plans for the future.
The company's managing director, RR Vederah, has recently announced that it is to make a first time move into containerboard production by installing a 300,000 tonne/yr machine which should be up and running in the next two years. Vederah also says that much of the machine's output would be exported. Clearly an interesting space to watch.
The company is also taking advantage of another growth area, tissue. Earlier this year it announced that it had struck a deal to purchase Premier Tissues India for Rupee 765.2 million ($16.4 million). The acquisition comprises of two machines at the Bannur site in Karnataka state which have a combined capacity of around 8,400 tonnes/yr.
Expansion doesn't stop at board and tissue, on the pulp front, BILT is also currently installing two bleached hardwood kraft (BHK) pulp lines. One of the lines is being installed at the company's Sewa mill in Orissa state which already houses a 60,000 tonnes BHK line and the other is going in at the Ballarshah mill in the state of Maharashtra which already has a 125,000 tonne/yr BHK line.
Nine Dragons is a relative newcomer to the paper industry, starting out with just one reconditioned paper machine in 1998. Since then the company has seen a meteoric rise and it is now China's top paperboard packaging producer with a capacity of around 9 million tonnes/yr. But it hasn't all been plain sailing, the global economic turndown hit Nine Dragons particularly hard, and it shelved a lot of its major investments that were planned at the time.
However, last year the company re-started its investment programs, and is now set to increase its capacity from 8.55 million tonnes in June 2010 to 12.43 million tonnes in 2012. This two year growth plan will diversify the grade mix which was almost exclusively in recycled content linerboard and corrugated medium. By mid 2012, the company plans to be running 5.6 million tonnes of linerboard, 2.95 million tonnes of medium, and 3.9 million tonnes of what Nine Dragons says is "high margin products".
The new capacity over the two years will be added at each of its four main mills as well as at a new "supercenter" in Quanzhou, Fujian Province. Expansion at the Tianjin mill will add 1.35 million tonnes, Dongguan, 799,000 tonnes, Quanzhou, 646, 000 tonnes, Chongquing 536,000 tonnes and Taicang 536,00 tonnes.
With this dramatic increase in capacity, sales also continue to grow with revenue up 36.7% in 2010 to 17.9 billion RMB and profit at 2.2 billion RMB. Nine Dragons will clearly be one of our Five to Watch for 2011 and no-doubt well beyond.
Another Chinese company that has seen a meteoric rise and is on our Five to Watch list is Shandong Chenming. The company started out as a state-owned enterprise with just one mill, and is now a state of the art operation with fully owned facilities in various locations. The state still owns a 14.21% share of the firm, which is listed on both the Shenzen and Hong Kong stock exchanges.
But it is the new areas of expansion that makes this company one to watch for 2011. In 2008 it announced the world-scale Zhanjiang pulp project, a 700,000 tonnes/yr BHK mill in Guangdong province. The pulp mill will also see the integration of a 450,000 tonnes/yr fine paper machine, both set to come on stream this year. The mill will be fed by the company's own fast growing plantations of eucalyptus. The company took over the pulp project in 2005 after Finnish giant UPM abandoned the scheme.
Another new area of expansion is into tissue production in China. The company has recently begun trial runs on a large tissue machine, supplied by Andritz at its mill in Shouguang city, Shandong province. The unit is part of Shandong Chenming's first foray into tissue production.
The company has also install a variety of converting equipment which will see it supply toilet rolls, kitchen towel, facial tissue and napkins for the growing market domestic market.
To see last year's Five companies to watch - Asia, gohere