It is again that time of the year when we look back at how the pulp and paper industry in Australia and New Zealand has fared for the business fiscal year, which in this part of the world is the year to June 30, 2013.
Again we thank our good friends at Industry Edge for permission to reference information from their authoritative publication, Pulp & Paper Strategic review for 2013, which draws on Australian Bureau of Statistics (ABS) and New Zealand Department of Statistics for statistical data for 2012-2013 as well as other sources and its own significant data base to provide a comprehensive analysis of the Australasian industry.
It has been a year of a few “highs” but with a lot of “lows” for the pulp and paper industry. The start up of Amcor’s PM9 was a real highlight but the closure of 3 containerboard machines as a consequence and the subsequent closure of the Petrie Cartonboard machine recently more than offset the ebullience of a new machine start up. The placement of Gunns into receivership may herald the end of the dream of a large export bleached kraft mill and the opportunity for Australia to have a world class pulping facility. Perhaps all is not lost as the Receivers claim that there is a high level of interest in the rights to the pulp mill license and infrastructure, which are being marketed for sale. It would a brave call however to suggest that anytime soon there will be a son of a Gunn.
In Australia apparent net consumption of paper and paperboard fell again for the fifth year in a row. The market peaked in 2008 when consumption was well over 3.9 million metric tons but declined to about 3.3 million metric tons in this last year, almost all of the decline being accounted for by falls in consumption of newsprint and other printing papers, which reflects the continuing depressing trends for the printing and communications sector.
Total domestic production dipped below 3 million metric tons for the first time in a decade but exports continue to increase to compensate for less being consumed locally and imports increasing at the same time. Over the decade production has hovered just above 3 million mtpa annually.
Exports of Kraft linerboard have been a real growth sector, quadrupling over the last decade to more than half a million metric tons annually. Corrugating medium exports are also significant at close to 300,000 mtpa. The quiet achiever in exports has been recovered paper, increasing fivefold to over 1.5 million metric tons in the last year. As might be expected China is the primary destination with about 75% of exports finding their way to China. The bulk of the balance of exports is to Indonesia, largely in the form of old newspapers and magazines.
Key product classifications statistics show that Newsprint consumption continued to decline dramatically and over the past 2 years demand has fallen by the best part of 30%. Annual demand now is not a lot above 400,000 metric tons, almost in balance with local production. This is a far cry from the peak demand of 735,000 mtpa in 2006. Imports continue their slow decline but exports have increased significantly. New Zealand, once the principle source of imports is now almost insignificant in the total. Korea, Indonesia and France (yes France) are the principle source of import supply. Seventy percent of exports are destined for India, which continues to have a strange reluctance to manufacture the grade. According to RISI, India imports more than half of its total 2.25 million mtpa consumption of newsprint and prices seem generally attractive.
Demand for printing and communication papers also continued to decline at a perilous rate. In the last 5 years demand has fallen by 20% and the rate of decline increased in the most recent year. There was some balancing of the market loss with mechanical grades bearing the brunt of losses this year whereas free sheet grades were the loss leaders the previous year.
Total advertising expenditure in Australia has declined since the GFC but print advertising is declining much more significantly and has fallen almost 40% and the rate of decline shows no sign of abatement. Of course declining advertising is only part of the story. Over the last decade checks have declined more than 60% and receiving an account for utilities (indeed almost anything for that matter) in the mail is almost a thing of the past.
Whilst demand for tissue products continues to grow, so does the paradox of demand and supply. Demand increased nearly 10% year on year but local production was the lowest in more than a decade. Imports supply nearly 50% of total demand, a statistic that seems improbable for such a high bulk product. Unsurprisingly China dominates the source of imports (more than 65%) and Indonesia is the other significant supplier
The packaging papers segment remains significantly the largest and most stable segment of the Australian paper and paperboard industry. The year saw a reversal of the decline in consumption of previous years, although still about 8% below the peak demand which occurred in 2006. Production declined a little from its peak in 2011 with about 45% of it being exported. Imports increased as well, to the highest level ever and now represent more than 20% of demand. This is expected to grow significantly with the closure of Petrie Mill, which supplied about a net 100,000 mtpa to the market. The coated Cartonboard market has been fairly stable over the past five years reflecting the entrenched structural changes in the market but the latest year recorded the second lowest consumption in the last decade, only the start of the global financial crisis was worse.
More the 70% of the market is containerboard with apparent consumption averaging a little more than 1 million metric tons annually. Demand in the most recent year grew by about 1% but the trend over the decade is slightly negative. Looking ahead forecasts are that the market will show some modest growth. Kraft Liner and Test Liner have essentially equal share of the liner market.
In New Zealand the situation is relatively stable although total apparent paper and paperboard consumption continues to decline year on year from about 750,000 metric tons to just under 740,000 mtpa. Looking back over the last decade, apparent consumption has moved around significantly but has averaged about 750,000 mtpa. The underlying trend has been a gradual decline in all grades except printing and communications but closer analysis suggests that demand has well and truly peaked. Production of paper and paperboard in New Zealand declined at a somewhat greater rate and with the closure of PM2 at Tasman, newsprint production fell by about 50,000 mtpa, but the full year impact will be greater.
In New Zealand tissue consumption continued to decline precipitously; by more than 25% over the last 2 years. It is beyond the interests of inter-country relations to speculate what has driven this change.
Production of the three grades made in New Zealand (Packaging, newsprint and tissue) has followed demand with the exception of packaging papers, which have increased production over the decade and that situation is set to improve with the closure of Petrie Cartonboard mill in Australia.
Both Australia and New Zealand are small economies. Australia accounts for only about 0.8% of global demand and for New Zealand it is less than 0.2%. Together the 1% of global paper demand is almost an irrelevance in the global scene. Yes there are exports of paper products but the paper needs of Australia and New Zealand could be met globally without almost noticing where the product came from. The significant bleached kraft export business that was tantalizingly close with the proposed Gunns’ mill was the opportunity for Australia to be a significant part of the global supply chain.
Demand for printing and communication papers in particular will follow global trends and they seem to be going irretrievably in one direction. It is not much of a stretch of imagination to speculate that in the Boardrooms of the global corporations who own the Australasian manufacturing resources that a decision will be made to “rationalize” manufacturing, which could eventually see the demise or certainly further contraction of current manufacturing capability.
Packaging papers probably will continue to be manufactured here and for the most part what remains is reasonably competitive and globally relevant. That said, manufacturing is in crisis and even food processing is increasingly being subject to global rationalization with an attendant decline in packaging demand.
To underline the seriousness of the situation, Ford has announced that it will cease manufacture of automobiles in Australia in 2016 and it seems highly likely General Motors will exit shortly after. That would leave only Toyota who along with GM says it costs almost $4000 more to manufacture a car in Australia than elsewhere. They could also exit and the flow on effect to suppliers could impact paperboard demand quite significantly.
There is a new Federal Government in Australia and even though they plan to repeal a number of taxes including the “carbon “ tax and Resources Rental Tax (the “mining tax”) , which would provide some relief to manufacturing costs a lack of a senate minority may stymie that outcome, at least until a new Senate is installed in June next year. Even though the three yearly elections for half of the Senate were held in October the results do not become effective until the dates specified in the constitution, unlike the House of Representatives, which can have elections called at the whim of the Government, even though terms are nominally for three years.
For both Australia and New Zealand there does not seem to be a national appetite for export industries, which would be essential to any large scale developments. Although both countries have significant forest resources it is difficult to identify how they can be harnessed to realize their potential. The answer may well rest with other bioresource options such as energy or fuels – but that is the topic for another day.