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Asia’s Pulp Supply and Demand: Realizing the Potential

Asia’s Pulp CopyDiagram 1 CopyMarket Pulp Demand 2000-2011: Why is Asia important?

Asia lead by China’s fiber shortage and rapid economic growth has been so dynamic that since 2000 has accounted for almost 100% of global growth in the market pulp demand during 2000-2011.We have been living the future of China & Asia being the global engine for growth.

Consumption Growth of Paper Grade Market Pulp By Region Through 2025

The future looks like an exclamation point to the past decade, meaning the market pulp business will even more be all about China and Asia. In the next few years China will become the largest market pulp market in the world. China and Other Asia in total will represent about 40% of total global demand and 70+% of total global growth for market pulp.

Diagram 2 Create CopyDiagram 3 CopyAsia’s Market Pulp Growth Supply Regions

While the demand side since 2000 has been all about China the supply side has been all about Latin America. Latin America has dominated new supply like China has dominated new demand. This sets the stage for where we are and the question is where do we go from here. We have seen the future demand side dynamics let’s turn to where the fiber may come from to supply Asia.

Who Can Supply Asia’s Future Fiber

Here is the global scenario that shows who has fiber and who does not:

Brazil has the land base available to significantly increase production of HWD fiber based on fast-growing plantations.

Russia has a significant reserve.

China has a major deficit.

Indonesia -Increased harvest based on existing and potential plantations, and MTH harvest increase modest cost increase.

Australia & New Zealand – Increased harvest based on existing and potential plantations, and MTH harvest increase modest cost increase.

The key messages are:

Asia has the world’s greatest fiber deficit

Russia has significant reserves of softwood fiber

Russia also has significant reserves of hardwood fiber; and Brazil and SE Asia have the ability to increase production of hardwood fiber based on fast growing plantations.

Diagram 4 CopyDiagram 5 New CopyWho Wants To Supply Asia’s Fiber

We shared a perspective on who has potential to provide fiber, let’s now think about who wants to supply Asia’s fiber. The “want to” factor is driven by several factors including cost position delivered to Asia, execution capability to create new production platforms, and the relative attractiveness of supplying Asia v/s other market alternatives.

Let’s look at softwood first. Russia is the low cost producer of softwood market pulp and has both fiber availability and attractive fiber cost. Russia meet’s the “want to” criteria to be interested in supplying additional softwood market pulp to Asia.

Looking at the hardwood cost curve, we see that Russia, Brazil, and Southeast Asia meet the “want to” criteria from a cost to serve perspective. The last decade has also demonstrated the ability of Brazil and Southeast Asia to execute large-scale projects and be interested in supplying the new market pulp to the growing Asian markets.

Predicting Fiber Cost Trends

Russia, Brazil, and Southeast Asia look like they would have the willingness and ability to provide Asia with its market pulp growth needs. Some of the factors that will change the relative cost of producing fiber in the world’s key regions:

Increases Fiber Cost

Decreases Fiber Cost

Europe

GHG and Energy Policy Biofuels

Local P&P Supply/ Demand

Russia

Infrastructure investment Climate Biofuels

Forest Code Intensive Forestry Land Base Developing Project Know How

North America

GHG and Energy Policy Biofuels

Local P&P Supply/ Demand

Latin America

Palm Oil/Sugar Cane Other food needs Biofuels

Fiber productivity Project know how

Asia

Palm Oil Other food needs

Fiber productivity Project know how

Summarizing the positive and negative factors, Russia, Brazil and Southeast Asia will continue into the future to have the willingness and the ability to provide Asia with the market pulp it needs to continue to grow.

A Perspective From Russia

Russia could in the past be summed with “Long on Potential, short on activity”. Earlier in this article Russia was included as both meeting the “want to” criteria to provide fiber to Asia, and having the willingness and ability. To remind as to why:

Russia the world’s largest forest reserves

Russia has globally competitive costs

Russia has a developing ability to develop additional supply platforms,

Russia’s awakening is positive for Asia

The Future is Now

Asia’s future is bright and Asia will continue to be the guiding light for future market pulp demand. Russia, Brazil, and Southeast Asia have both the willingness and ability to partner with Asia to provide the new market pulp Asia needs to continue to develop and takes its position at the head of the world table.

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