Chapter 2

Paper and Paperboard Industry

Abstract

The pulp and paper industry is one of the largest industries in the world, with very high capital investments. The world's total paper production amounted to 403 million tons in 2013. The majority of manufacturing facilities in the paper industry are integrated. Most paper mills begin with wood chipping at the front end, followed by pulping, bleaching, papermaking, and recycling of post consumer products. The paper and paperboard industry in the global market and general aspects of pulp and papermaking processes are presented.

Keywords

Bleaching; Papermaking; Pulp and paper industry; Pulping; Recycling

2.1. General Background

The pulp and paper industry is one of the largest industries in the world, with very high capital investments. Growth is fastest in Asia. This is mostly because of China's rapidly expanding industry. Asia already accounts for well over a third of global paper and paperboard production. The world's total paper production amounted to 403 million tons in 2013 (399 million tons in 2012) (www.forestindustries.se/Documentation/International). Asia, which accounts for 45% (179 million tons) of paper production, is by far the largest paper producer. Europe (107 million tons) and North America (85 million tons) are also significant producers (Table 2.1). Paper and paperboard consumption continues to grow in Asia, especially in China. It has been estimated that global paper consumption in 2025 will amount to 500 million tons. This means growth of about 1.6% a year. Global consumption of paper has increased by almost half since 1980. Europe and North America account for almost a third of consumption, whereas Asia's share of global consumption is already 44%. Demand in Eastern Europe is also growing faster than in traditional markets. Belgium is the biggest paper consumer in the world. Table 2.2 shows global paper production by grade (printing and writing paper 30%; corrugated material 37%; paper board packaging 13%; newsprint 5%; others 7%). In 2012, 39.9 million tons of graphic papers were produced in Western Europe. More than 70% of printing paper is consumed in Western Europe and North America. In Western Europe in 2012, packaging paper production amounted to 41 million tons. Tables 2.3 and 2.4 show global pulp production by region and by quality. The total pulp production was 181 million tons in 2012 (chemical pulp 72%; mechanical pulp 20%; others 20%). The world consumption of paper is shown in Table 2.5 and per capita consumption is shown in Table 2.6. Per capita paper and paperboard consumption varies a great deal by country and region. The United States and Canada have historically been large consumers of the world's paper. North Americans consume more than 17% of the world's paper despite having only 5% of the population. The global average is about 57 kg of paper per person, with the extremes being the United States' 300 kilos and Africa's about 7 kilos. In densely populated areas in Asia, paper consumption amounts to only approximately 35 kilos per capita. This means that there is enormous growth potential in Asia, if development follows the same path as in the Western industrialized countries. In spite of the continued focus on digitization, India's demand for paper is expected to increase 53% in the next 6 years, basically because of a sustained increase in the number of school-going children in rural areas (Kumar, 2014). Rising literacy (continued government spending on education through the Sarva Shiksha Abhiyan), increasing use of documentation, growing consumerism, and modern retailing will keep demand for writing and printing paper buoyant. Though India's per capita consumption is quite low compared with global peers, things are looking up and demand is set to rise from the current 13 million tons to an estimated 20 million tons by 2020 (www.paperage.com). An India Ratings report estimates India's per capita paper consumption at 10 kg, against 22 kg in Indonesia, 25 kg in Malaysia, and 42 kg in China. The global average stands at 58 kg. This clearly shows there is a lot of headroom for growth in India. From a demand point of view, every 1 kg incremental per capita consumption results in additional demand of more than 1 million tons a year. Policy factors also have a key role to play in the growth of the domestic paper industry in India. Factors positively affecting paper consumption and demand in India are presented here:

Table 2.1

Global paper production by region

North America 21% Asia 45% Europe 27% Latin America 5% Oceana 1% Africa 1%

Based on Swedish Forest Industries Federation (Skogsindustrierna).

Table 2.2

Global paper production by grade

Printing and writing paper 30% Corrugated material 37% Paperboard for packaging 13% Tissue paper 8% Newsprint 7% Other papers 5%

Based on Swedish Forest Industries Federation (Skogsindustrierna).

Table 2.3

Global pulp production by region

North America 37% Asia 23% Europe 25% Latin America 12% Oceana 2% Africa 1%

Based on Swedish Forest Industries Federation (Skogsindustrierna).

Table 2.4

Global pulp production by quality

Chemical pulp 72% Mechanical pulp 20% Others 8%

Based on Swedish Forest Industries Federation (Skogsindustrierna).

Table 2.5

The world consumption of paper

North America 20% Asia 46% Europe 24% Latin America 7% Oceana 2% Africa 1%

Based on Swedish Forest Industries Federation (Skogsindustrierna).

Table 2.6

Per capita paper consumption 2012

Paper consumption kg/capita North America 224 European Union 158 Europe, other 52 Japan 218 China 75 Korea, Taiwan, Hong Kong, Singapore, and Malaysia 158 Rest of Asia 15 Oceania 132 Latin America 47

Based on Swedish Forest Industries Federation (Skogsindustrierna).

Government's sustained focus on literacy Increased consumerism Expansion in organized retail Digital media has a lot of ground to cover, at least as far as penetration is concerned, basically in rural areas. Paper is an established business and its consumption is being encouraged. What is heartening it that although there were challenges, the packaging side of the segment continues to grow. In the past 5 years, the Indian paper sector has made an investment of about Rs 20,000 crore on technology upgradation, capacity enhancement, and acquisitions. Now, companies in the sector are seeking to improve their balance sheets. Although the sector is enthusiastic to expand the capacity further, decisions in this regard will depend on how soon companies can improve their financials. According to the India Ratings report in 2014-2015, paper companies would achieve better profitability and free cash flows with lower capital expenditure, and this would help in deleveraging. This is because the debt levels of these companies have peaked and cost benefits will accrue from backward integration (because of capital expenditure) and a larger scale of operations. The capacity expansion that took place in the industry through the past few years is now being absorbed because of the rising demand for paper in India. The sector, which faced challenge from rising input costs, is now better placed because of a renewed thrust on agro-forestry and softening of pulp costs. Commissioning of several...