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China drives paper market

China is real, is happening and has been the driving force for the recovered paper market for the last few years. And the country will continue to be a driver going forward in the future. But while China will be increasing capacity in the next year the dominant players trading with the country are more likely to come from North America, Japan and Korea rather than Europe.

Speakers at the WasteExpo conference in Dallas last month said total waste paper imports into China from the US increased nearly five fold from 1998 to 2003.

Michael Peltz, manager for international sales at Recycle America Alliance, said annual imports of OCC increased 5.6 times, an average of 39% annually; ONP increased nearly 78 times, an average of 216% and mixed paper increased 6.6 times, an average of 41%. Though bulk grades have been booming deinking high grades are likely to increase shortly through the building of one mill for these grades.

China will be adding 2.9 million tons of recovered paper capacity in 2004, an 82% increase on 2003. It is building new mills and shutting down antiquated, small family run businesses.

These mills have state of the art technology and can handle more mixed paper than the US and Europe, said Bill Moore, president of Moore Associates. The country has an enormous appetite for mixed paper and expects the US to provide fibre for it.

The majority, 70% of fibre, will come from the North and South American markets, with 2.5m tons from North America alone, said Larry Cisco, regional procurement manager at Abitibi Consolidated.

China consumes 3 million tons of recovered paper, more than it collects. It will add 2.5 million tons to 3 million tons of new recovered based capacity this year above and beyond its demand on all paper grades, he said.

I dont expect Europe to grow as a significant supplier to Asia. The prime players will be from North America, with Japan and Korea key exporters to China.

China is now the largest importer of US recovered paper, exceeding Canada and Mexico. The country imported 5.5m tonnes in 2003, twice as much mixed paper than OCC. More paper machines are expected to come on line with a greater reliance on US fibre.

One of the reasons for this increasing dependence on China is the deteriorating US market with lower yields and higher manufacturing costs continuing to make their impact. The US paper industry lost 6.5m tons of capacity 2000-2003, according to Moore, and it is expected that mills will continue to shut down, affecting large and small companies alike. Since 2001 57 mills have closed.

Peltz believes recovered fibre is likely to display continued if not greater price volatility in the future. He puts this down to the bullish effect of continued stocking for Chinas 2-3m tons additional recovered paper based capacity in 2004 and another 2-3m before the end of 2006. Additional European production capacity and increased domestic usage in Japan will constrain recovered fibre available to China and other Asian importers.

China is expected to continue to depend on the US. But shipments from Japan and Europe, particularly the UK, Germany, Holland, France and Belgium have been increasing greatly. u

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