Powerful trends continue to shape the global market for pulp and paper. Consultant Tom Wright from the UK-based Hawkins Wright comments that the new world order mainly hinges on two things: substitution and sustainability.
Wright points out that there is still a huge appetite for investment in hardwood pulp capacity in Latin America and, to a lesser extent, in the Far East:
"With the growth of demand in emerging markets expected to slow down, several major projects will be completed over the next three years. The likely outcome of this will be huge structural changes in the industry, possibly due in part to consolidation or diversification," Wright says.
"But more than anything, the constraints on substituting various fibers will be tested," he argues, adding that differentials between primary and secondary (i.e. recycled fibers) and softwood and hardwood pulps will be of particular interest here.
In the area of sustainability, Wright remarks that while the drive to maximize value from forests in a wide variety of forms is a well-established trend, there is still a great deal going on. Energy policies in Europe and elsewhere have evolved over the past five years, and the importance of woody biomass as a feedstock for energy generating is growing.
Green Energy Ambassadors
Wright points out that this is important for two reasons: firstly, it allows nimble and well-organized forest sector businesses to diversify their revenue streams. Arguably of greater importance, however, it further enhances the status of wood as a renewable resource in the public mind, and turns traditional "pulp and paper" companies into suppliers of "green energy".
"Of course, the politics of energy are complicated. The two worlds do not exist in perfect harmony, but hopefully with greater public awareness the sustainable credentials of the pulp and paper industry will be better understood," Wright explains.
He also forecasts a fairly bright future for pioneering industry operators like Metsä Fibre:
"As a major softwood pulp supplier with state-of-the-art technologies and well-established sales channels in Europe, China and new emerging markets, Metsä Fibre is well positioned for the years ahead," Wright says. He also notes that like any commodity sector, the pulp market relies on many factors that are beyond our control. These variables include currencies, economic development and technological innovation.
"It is crucial in such an environment to focus on the things that you can influence, such as cost-effectiveness and customer service. It is also important to remain alert to changes as they occur, and to react accordingly."
One thing is certain: the times, they are a-changing. The social media revolution and the proliferation of mobile Internet devices are two "once in a lifetime" events that have undoubtedly had a major negative impact on demand for communication paper over the last half-decade. Wright freely concedes this point, but he notes the difficulty of quantifying these impacts separately.
" The pace of change in the world of technology is certainly astonishing, if not alarming," Wright says, adding that companies like Facebook, Google and Amazon - all previously regarded as disruptive innovators - have very rapidly grown into established multinational corporations.
"These companies must constantly innovate and reinvent in order to retain a market share among a younger generation that is always looking for something new. Legitimate concerns have also been raised about privacy and safety, and about the impact of social media on the younger generation during its formative years."
While Wright is not suggesting that we should expect any specific backlash in consumer SoMe behavior, he feels that a more thoughtful approach to social media may well emerge. For the time being, it remains very difficult to predict the pace at which new media will continue to supplant the use of paper.
"An optimist might feel that the stage of easy substitution is now over, and that surviving paper-based applications will be more resilient in future. Paper already seems fairly obsolete as an archiving medium, and businesses now need to apply several marketing strategies using more than one communication medium to reach their customers," Wright says.
"At the same time online shopping and the trend towards home delivery has also helped to boost demand for packaging paper and board, and has partly offset the impact of slow economic growth."
The Great Call of China
The rapid growth of Chinese industry over the past decade has helped to offset losses elsewhere for fiber suppliers, with China now accounting for 28 per cent of global market pulp demand compared to only 15 per cent in 2007. Wright nevertheless notes that much of the growth in Chinese paper production has come from the displacement of low quality paper products using non-wood fibers, displacement of imports, and rapid growth in exports of paper and board in both converted and unconverted form.
"Chinese paper consumption has naturally also increased, but by less than widely supposed."
Wright suggests that China's previous growth model has proven unsustainable in environmental, economic and social terms. The new Chinese government is introducing reforms with a view to boosting domestic consumption and reducing wealth inequalities. These reforms will greatly increase demand for paper in the long term if they succeed, but this outcome is not guaranteed and the new model entails slower growth rates.
"Demand for communication papers in China is also subject to the same competition from new media as in developed economies. For all of these reasons, this economy remains the most important 'risk' factor in any forecast for the global pulp and paper industry."
India Still Small
How about India, then? After all, several investment projects have focused on building Indian fine paper and pulp capacity - with demand for paper increasing by 7 per cent and imports of pulp by 100 per cent over the last five years.
While acknowledging the substantial potential of India, Wright points out that this market nevertheless remains relatively small in absolute terms:
"China imports more pulp in three weeks than India does in a year."