Thursday, 9 April 2009

Pulp and Paper Producers Shift Focus to Asia

April 9, 2009 The Jakarta Globe

Teguh Prasetyo & Arti Ekawati

As demand for pulp and paper products falls in Indonesia’s traditional markets, Europe and the United States, domestic producers are starting to shift their focus to major markets in Asia.

“In order to survive, the industry is now striving to achieve greater penetration in the big Asian markets, such as China, India and South Korea,” Muhammad Mansur, chairman of the Indonesian Pulp and Paper Association, or APKI, said on Tuesday.

According to Mansur, the decision to focus more on the Asian markets was the result of changing demand trends.

“While previously demand was dominated by the European Union and the United States, since the end of 2007 there has been increasing demand from countries in Asia, especially China and India,” he said.

In its export market evaluation published last month, the association predicted that China, with demand for pulp between 2007 and 2010 expected to reach 25 million tons, and India, with demand to hit 14 million tons over the same period, would become the biggest importers of pulp in the future.

Mansur said data for the European Union and United States was still being compiled.

In addition to good prospects in Asia, he said the recovery of the domestic pulp and paper industry was now in sight thanks to a more stable supply of raw materials following the granting of new forestry-plantation concessions covering 7 million hectares this year. The issuance of permits earlier this year allowed for waste timber — which had been felled for the purpose of establishing forestry plantations — to be used as raw material, he said.

25 million tons demand expected from China

Between 2007 and 2008 the industry found itself in a dilemma, he said, with the Forestry Ministry and National Police at loggerheads over whether it was permissible to use such timber as raw material. “Previously, there was a lot of uncertainty over whether it was legal to use this sort of timber. According to the Forestry Ministry, we were allowed to use it, but the National Police said its use constituted illegal logging,” he said.

As a result, Mansur said, the industry had been unable to fully benefit from record high prices of $900 per ton and $1,100 per ton for pulp and paper, respectively, in July 2008.

Over the last few months, the price of pulp per ton has fallen to around $600, while paper is averaging about $800 per ton, he said.

According to APKI, some 65 percent of the country’s total pulp and paper output is produced by factories in Riau and South Sumatra provinces.

The country’s two biggest pulp and paper producers are Riau Andalan Pulp and Paper and Indah Kiat Pulp and Paper.

Riau Andalan, which is owned by the Raja Garuda Mas Group, and Indah Kiat, owned by the Sinar Mas Group, jointly accounted for 4.2 million tons of the country’s total production of 6.7 million tons last year.

The remaining 2.5 million tons were produced by 12 other pulp and paper manufacturers.

Speaking earlier at a media briefing, Riau Andalan’s marketing director, Kusnan Rahmin, said that while future sales and production prospects in the sector continued to be promising, they were not as good as in recent years.

“We are now targeting some of the world’s most populous countries, such as China and India. Both of these countries offer promising market opportunities,” he said.

In 2007, China imported 7.05 million tons of paper, Japan imported 3.1 million tons and the countries of Southeast Asia 1.4 million tons, Kusnan said.

Riau Andalan, which supplies about 30 percent of world paper demand, exported 562,000 tons of paper in the first nine months of 2008, mainly to countries in the Middle East, Europe and Southeast Asia. It also sold some 187,000 tons at home.

The domestic market, which accounts for about 60 percent of industry sales, “is also a priority, but it needs the support of the government” through stricter control over smuggled products and the prevention of dumping, Kusnan said.

“Local pulp and paper producers in Indonesia, as well as other Asian countries, are facing a flood of very cheap paper exported by recently bankrupt manufacturers in Europe and North America,” he said.