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Lee & Man warn it will buy less recycled paper

Raymond Lee, the founder and chief executive of Chinese containerboard producer Lee & Man Paper Manufacturing, has warned that his company will be forced to stop buying new material in order to reduce its high inventories of paper.

Speaking at the European Paper Recycling conference in Amsterdam at the beginning of the month, he explained that prospects for the paper industry were not good.

He was decidedly pessimistic about near- and medium-term growth prospects for his industry given slowing export, domestic and government demand. He revealed that his company - which consumes around four million tonnes of mostly-imported recovered fibre per annum - will be opting for a period of consolidation in 2009 and will be unveiling no new capacity in China. In addition, he noted, the companys first production project in Vietnam will be delayed until 2010.

As for the more immediate future, Lee warned that many of Chinas containerboard producers - including his own company - would be forced to take downtime, particularly at the end of this year, in order to reduce high inventories of recovered paper and, more notably, finished product. Prices were crashing down, he said. He explained domestic OCC prices in China had dropped 20% in the 10 days prior to the conference in Amsterdam.

Lee emphasised that core activities will remain at the heart of Lee & Mans operations. He noted, for instance, that the company has bought mixed papers - and might do so again in the future when it makes sense - but that the core focus will still be OCC. Similarly, the firm has been active on a small scale in the containerboard export market but will concentrate principally on selling to domestic customers, not least due to tax changes implemented earlier this year within China.

From the wider industry perspective, Lee expected many of Chinas smaller containerboard mills to go out of business for demand, political and environmental reasons. The domestic net capacity change for 2009 will be single-digit growth - and perhaps even low single-digit growth, he contended.

On a global level, he anticipated a reduction in paper and paperboard output as well as an idling of higher-cost capacity, not only in Europe and the US but also potentially in China. Furthermore, the global financial crisis might persuade investors to pull money out of emerging economies such as Vietnam because suddenly these new markets are risks despite the undoubted attractiveness of their lower cost base, he said.

Read more of this report in the October 31 issue of MRW.

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