1. Investments and the demand of fibre will grow
The consulting and engineering firm ÅF Pöyry estimates that demand for market pulp will grow by approximately 2.5 per cent a year over the next five years.
“Demand is growing particularly in the developing markets, such as in China, where the growth of the middle class is increasing the demand for consumer goods,” says Tomi Amberla, Principal of Pöyry Management Consulting.
Major pulp producers are investing in increasingly efficient mills and new know-how. The pulp industry’s forthcoming investments are now bigger than before. “Over the past 10–15 years, the size of typical investments has doubled,” says Teija Konttori, Managing Director of the management consulting firm Vision Hunters. Konttori believes that the industry’s biggest companies will continue to carry out the largest investments. Large new mills also require new kinds of machines.
Metsä Group also intends to make use of the development work carried out by equipment suppliers. In Kemi, Finland, the company is planning to replace the old pulp mill with a modern bioproduct mill, which would produce 1.5 million tonnes of pulp a year. “We can double the production with fixed costs that are only slightly higher than the current ones,” says the Ilkka Hämälä, President and CEO of Metsä Group.
The crucial question is whether Metsä Group is able to be competitive in the markets with growing demand. “We can’t compete with the price of our raw material, so we have to create our competitiveness from our own operations.” Hämälä characterises the Äänekoski bioproduct mill and the proposed new bioproduct mill of Kemi as performance leaps. “If you make a technology leap, it must enable your competitiveness for at least the next 30 years. This is why we’re not renewing our mills one part at a time – it ties up development.”
2. We will see more acquisitions
Teija Konttori expects to see acquisitions in the pulp industry in the next few years. Securing the availability of raw material is another important driver. When the economy grows, the number of acquisitions increases, because money is available and demand is strong. The situation will be influenced by the transition of purchasing power and demand from Western countries to Asia. The likelihood of acquisitions is further increased because the forest industry’s consolidation rate, which describes an industry concentration, is still low.
Teija Konttori believes that, in the pulp industry, the highest organic growth will happen in the areas where wood fibre is available for a relatively low price, such as in Northern Europe, North America, and South America.
3. China’s import ban will change the market
There is an increasing number of takers for the low-price fibre. This development was triggered by the decision of China’s central government to restrict the import of recycled paper. The import restrictions will transform the structures of the Chinese forest industry. “Some small and medium-sized players will disappear from the market due to profitability issues and the fibre shortage. Big companies will be capturing a larger share of the total production,” says Tomi Amberla.
Although the volume of recycled paper imported by China has been high, the import restrictions have a fairly minor impact on the demand for fresh fibre. Chinese companies have already come up with various solutions to the fibre problem. Investments overseas have played a key role.
4. Price fluctuation might increase
But how to secure the availability of fibre in the years to come? According to Amberla, companies will intensify their cooperation with reliable pulp suppliers. If an increasing share of the produced pulp is earmarked for pre-selected buyers, the share of pulp in the open market may decline. “If this happens, price fluctuation will grow. Sometimes you will be able to buy pulp at very low prices. At other times, it will cost so much that you won’t be able to pass the cost on to your products,” Amberla says.