BRUSSELS, June 10, 2013 (RISI) -
PPI: First of all, congratulations you are awarded RISI Asian CEO of the year for 2013. You also won the honor in 2010, and you are the first two-time winner in Asia since voting began in 2008. What do you want to say for getting this prestigious reward?
Li Hongxin: I feel so privileged to get this award. It is also recognition of Sun Paper's development. We will lead China paper industry's development and will contribute to Asia's as well as the world's paper industry with our hard work.
What is the biggest achievement of Sun Paper in 2012 in your view?
Sun Paper has made great strides in 2012. During the year, we clearly saw the trend of paper industry in China and realized that the old development model, e.g., to just expand capacity in an intensive way, would not work anymore. Sun Paper, as well as the paper industry in China, will have to find an industrialized, meticulous and differentiated way of development if we want to be big as well as strong.
Sun Paper made some strategic shifts as well as management adjustments amid the most difficult time that the paper industry has faced. For example, we are developing recycling, the biorefinery, tapping into tissue making, shifting quickly to fast moving consumer goods, etc. Our company's profit in Q1 this year doubled despite the overall downturn of the industry.
China's paper capacity has witnessed fast growth in recent years. What's your opinion on this? What's the trend in the future?
The fast expansion in capacity is a result of China paper industry's development. China's production has become the largest in the world, and this does not tell the full story. The most important thing is that the industry is equipped with advanced technology and mills, which are the most sophisticated in the world. In addition, the industry's structure and quality have reached the highest level.
Meanwhile, China's paper market is the world's biggest and most vibrant. In the last few years, China's paper industry has not only developed in quantity but also surpassed a critical mass in terms of its quality.
The production capacity surplus has caused a problem right now, but the paper industry is not alone. It is not just in China; it also applies to the world. Compared with steel, cement and glass, the industry's overcapacity issue is not that outstanding.
The reasons that led to overcapacity are mainly affected by the economy on the whole. Actually, the overcapacity situation can help the industry to weed out old and polluting capacity, to escalate the industry and to lead to further consolidation. The market, an invisible hand, will help solve problems that government policies would not help amid overcapacity, which will help the industry to improve further.
I think the paper industry will grow modestly in the future, but the quality of growth will be improved. A batch of large-scale, high-technology projects will come on board gradually; we will see more mergers and acquisitions in the market. Companies will increasingly invest abroad and will gradually be part of the global industry. China's paper industry will become the biggest and fastest growing in
In terms of technology and industry development, pulp and paper making will extend its industrial reach, for example, into the biomass sector. The industry will enter into a whole new world of development and will change the old industrial models.
Sun Paper has started up a new 550,000-tonne/yr cartonboard PM with IP at its mill in Yanzhou city, Shandong province. PM 26 is producing coated ivory board grades, such as packaging for liquid, food and cigarettes, a paper grade which heavily relied on imports. How is the project going?
It took only 10 months' for PM 26 to start up. Now it has reached design capacity, and it has enforced Sun Paper's leading position in high quality ivory board. The product has been well received in the market and the sales performance is satisfying. The product is mainly for the domestic market.
China's ivory board had overcapacity concerns in 2012 with a lot of new investment on board. How can Sun Paper ensure it stands out in the market? Will Chinese ivory board prices emerge from their downward cycle in 2013?
To become a leading company in the industry, you need to have market influence as well as some sort of scale, in addition to having advanced technology and stable quality. So, to cooperate with IP is a win:win situation, as it takes advantage of both parties. We have a strong local culture and market base while IP has good technology and management skills. It also has an international view with a wide vision.
Ivory board hasn't met its most difficult time yet. The grade will face its toughest test in the latter part of this year as well 2014. We will play to our strengths and we are confident we will surpass the hurdles as we did during the crisis of coated woodfree paper, and we will develop sustainably.
Sun Paper ordered two 60,000-tonne/yr tissue machines in April and tapped into the fastest growing paper grade in China. Can you let us know the decision behind this move and also your forecast on this sector? What are your plans in the future?
Chinese people's living standards will improve gradually with the country's evolution in urbanization. Sun Paper is located in the area with high population, high economic standard and huge potential in fast moving consumer goods market. Meanwhile, we have a perfect marketing network which will help us to open a new era in the tissue market.
Sun Paper's movement in Laos is also worth watching this year. The greenfield pulp mill in Laos' southern province of Savanakhet will house a 300,000-tonne/yr bleached kraft pulp line, and is scheduled to kick off production in mid-2013, though the original plan was in late 2012. (Sun Paper is one of the biggest market pulp customers in China, purchasing nearly 1 million tonnes/yr, with imports accounting for 70% of that figure.) Could you please let us know the latest status of the project? What is the strategic meaning of the project for Sun Paper? Any challenges of this project and solutions?
In our "forest-pulp-paper" project, "forest" is the base for development and is also the source for raw materials. Though we have postponed the construction of the pulp plant in Laos, we have accelerated the pace in afforestation. The afforestation in the country went smoothly which has built a good foundation for the whole project.
We did encounter some challenges during the course, e.g., the locals didn't understand thoroughly what we were doing and were not enthusiastic about participating. We tried our best to work with locals and let local people to understand our project. The local people have more confidence in us now and the project is going smoothly. We will work further with locals and hopefully will have a win:win situation with the local economy.
How are your Sun Paper's dissolving pulp projects doing? What is your company's forecast on this sector?
We plan to increase the production taking advantage of our unique technology and will boost our market share. We think that dissolving pulp had a huge potential. With restricted resources in land and high cost of labor, cotton's cost and prices will increase gradually. Also, dissolving pulp's advantages will be more and more obvious considering the strong demand from the textile industry.
Though the dissolving pulp industry is at its low ebb amid a textile industry downturn as well as effect of cotton imports, the industry has a lot of potential in the long run.
Recently we noticed that the sluggish paper and board market in China has driven some producers to invest in other industries to improve their financial performance. For example, in August 2012, Sun Paper announced its scheme to invest RMB 30 million in setting up a wholly-owned subsidiary to make xylose, xylitol and related derivatives, which are widely used in the food, pharmaceutical, and chemical industries. What is your strategy behind this?
Our industry will extend into the biorefinery area by tapping into dissolving pulp as well as xylose projects. This is a big movement for us. Our strategy is to implement cyclic development and to maximize the value of our industrial reach.
Sun Paper has recently deregistered two subsidiaries located in the Guangxi autonomous region and in Vietnam in January 2013, cancelling the projects that had been considered for them. What are the reasons behind them? How will you solve transportation of the pulp produced in Laos?
We canceled the Guangxi Fangcheng project, as the location we selected was not in the development area that the local government planned. As to the cancelation of Vietnam's wharf project, it is because we found that the investment was too big. We will use existing ports in Vietnam and Thailand to solve the transportation issues.
How do you see Sun Paper developing as a whole over the next few years?
We will change development models and adjust development strategies following industry's development trends. We will source raw materials from abroad, and make high class products which will be different from other products in the market. We will use more biomass fiber and develop fast moving consumer goods. We will make sure that we have a competitive edge and will leap forward with new development.
Could you please comment your management style?
Sun Paper is a very people oriented company and is active in attracting talents to the company and is also focusing on training staff with an aim to develop our staff's quality and professionalism. We are tolerant, down to earth, moving forward with spirit and focusing on innovation and meticulous management.
We have also shouldered strong social responsibilities during our development and clearly understand that we also need to contribute to society. We would like to work with everyone to make progress and share the fruits of our hard work. We would like to build Sun Paper into a global first class sustainable company!