Concerning Of tariffs and competition Jim,
Here is another fifth argument for your corrugated box case study, kind of combination of your point 3 and point 4: A sea container full of corrugated box has nearly no value in term of transported material if you compare to Paper. You mainly transport air and space between the external liners. As an additional point, standard containers don't like sea transport for condensation and humidity reasons.
Salutations/best regards from France
Arnaud Gouranton
Market Manager Pulp and Paper IM division Europe
Pall Corporation
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Jim,
I liked your article on tariffs, and I agree. However you left out how the Chinese demand for wastepaper affects North American wastepaper prices.
The paper industry is not all made up of large virgin kraft linerboard machines. Many of us use wastepaper as our sole furnish, or as a significant portion of our furnish. Some of our largest paper companies are highly motivated (falling over themselves) to ship our raw material (wastepaper) overseas at a higher price than the "Yellow Sheet". This is because Asia has a limited fiber supply, and will gladly pay top dollar for ours. This in turn creates a higher demand, thus creating higher prices for our raw material here at home. This can be felt the most here on the West Coast, and is reflected in the higher wastepaper prices as printed in the "Yellow Sheet". Our Mill brings in truckloads of wastepaper from 100's of miles away to fill our needs, while at the same time the local curb-side recycling material gets baled and put into containers to be sent across the Pacific.
It makes sense that Asia is growing it's paper industry. The paper industry is really dependent upon packaging. The more "widgets" an economy produces, the more boxes they will need. Since Asia is making the most "widgets", it make sense for them to produce the boxes for those "widgets" to be packaged, shipped and sold in. This is why it pains me to hear politicians say that the US is becoming a "service economy". This can also be called a "servant economy". Our economic stimulus package will be the savior to the average Chinese factory worker and the American cashier.
Asia's economic advantage is their labor costs and their lack of government hoops to jump through. Ours is our geography, the abilities of our labor force, and our raw material supply. By better managing our raw material (wastepaper), we could lower fiber costs to North American mills (our #1 cost to produce), which will in turn give us an advantage to compete in the marketplace. This may allow us to compete in other packaging areas such as displacing plastics with an economical alternative. Increased wastepaper use could also help lower energy needs required to convert wood chips. There are also the environmental advantages.
Paper products come from a renewable/recyclable raw material (trees and wastepaper). We have also learned how to produce this product in large quantities, in many different grades, and without destroying the environment. It is time that we realize our advantages, sell them to the consumer and move forward.
Mark Lindstrom
Production Manager
Tacoma Paperboard
***
Jim,
I know you are busy but your points on China are very accurate I would say. I would also say that right now the supply of fiber, or should I say the ability to supply fiber, is an incrediblly strong position to be in world wide. Europe is pinched by Russia's reduction in supply. Indonesia is impacted by the 2009 logging limitations that are already being enforced limiting production. Canada is imploding their fiber supply capability it seems. China is closing 4MM tons of straw pulp capacity a year for environmental reasons. This is even before you mention all the other fiber usage alternatives. Since I am in the situation of seeing China first hand on a daily basis, I see the huge internal demand, and in most cases now the domestic paper pricing is better than any thing outside the country. We have been able to raise prices fairly close to input costs. New environmental rules this year make water treatment discharge limitations lower than anywhere in the world I am aware of. The new rules will impact the ability to build new pulp and paper capacity in certain parts of the country. I would suspect that right now an integrated mill in the US should be able to compete directly with us in China but one interesting observation, I do not see it happening because they all tend to work through international customers or agents and do not know the market (very fragmented here). In fact we still have exports to the US into nich markets that could easily be served by US mills (it also seems to have something to do with getting some of that money you talked about back out of China in our case into US bank accounts - I do not understand it totally but it goes through China based distributors registered in the US and the return is recycle paper but the US dollar stays in the US account). We also have indirect exports since when the coated paper tarrif was implemented the printers came to China in droves to print here and then export the printed product to the US - look at many of the greeting cards now and note where they are printed.
As you can see below I work for a large international pulp and paper company but my current position is kind of like running our own business since it is a JV and [withheld] seems to kind of forget we are even here (not complaining). It is a great learning experience and I see many opportunities for the company as a whole to do better. I just wish the US mills would realize that they have a big opportunity right now. And if they ever start wanting something better than grayback for many packaging grades in China there will not be enough fiber supply chains. India is not very far behind. It will be interesting to see how it continues to develop, but it is truly a world market and you have to be aware of what is going on everywhere.
Gary Nyman
Technical Director
Yanzhou City, Shandong Prov. China
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Actually, I am not that busy, Gary. I always have time for and enjoy perspectives from readers.
Jim
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Dear Readers:
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Thanks,
Jim
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