Deloitte: China & other emerging markets likely to have significant impact in 2011 on global forest, paper, & packaging industry
Publish date: 10 February 2011
A new report by Deloitte Touche Tohmatsu Limited, Compass 2011: Global forest, paper, and packaging sector outlook, reveals that the emergence of China as a consumer and producer of wood and paper products has begun to have a tangible impact on the structure of that global industry. Where historically the sector was regionalized, the increasing influence of new players in emerging markets—due to their need for both raw materials and products to meet booming domestic demand—will likely alter the way the industry operates on a global basis and present unique opportunities for 2011.
According to the report, capital continues to migrate to emerging markets because of the high-growth potential and increase in returns on investments.
"While emerging markets are helping to boost the overall forest, paper, and packaging (FP&P) industry, key markets, which include North America and Europe, are challenged with modest increases in demand," says Mr. John Dixon, Deloitte Touche Tohmatsu Limited Global FP&P industry group leader. "Companies in North America and Europe will need to learn how to compete with the deep-pocketed, state-backed companies in emerging markets. As these companies become more global and buy overseas assets, they will present a different competitive profile to traditional players."
He continues, "The bright side in North America is that the discipline exhibited during the recession was different than in past downturns, where prices would plummet due to extremely volatile movement. This has not happened in the current recovery and it points to solid, pragmatic, and reasonably consolidated segments that appear ready for any improvement in market conditions."
In Europe, the FP&P industry experienced a nine percent production increase in 2010 in the paper/paperboard segment. This growth is attributed to the strong third-quarter results in 2010. The housing market in Europe is expected to grow modestly in 2011, offering the FP&P sector future growth potential.
According to the report, there are still challenges that companies face in the industry worldwide, such as talent and overcapacity. In the West, the challenge will be demonstrating that a career in FP&P has a future, in order to attract a highly skilled, innovative, and internationally mobile workforce. For companies in the East, the talent challenge lies in finding ways to advance individual skills and sharpen industry experience.
Cross-border activity is increasing, and overseas investments in China and South America are likely to occur as domestic sales increase. North America and Europe are still recovering and face challenges as emerging markets continue to consume an increased portion of the industry market share.
"As the global recovery continues, companies in the FP&P sector will need to look for new opportunities and customers to help advance the future of the industry," says Mr. Dixon.
Commenting on the specific conditions in China, Deloitte China FP&P sector leader Ms. Sally Sun said most China's paper companies have emerged from the recession more quickly than their peers in the rest of the world, helped in part by the China government's stimulus program. With a population of 1.3 billion, China will benefit from the future substantial paper demand, which is projected to grow to 143 million tons in 2021, approximately 300% growth over the last 15 years.
"Globally, China will continue to increase its participation in the world market, especially in light of overseas acquisition made by Mainland companies. However, China's paper industry also faces a lot of challenges, such as the pulp shortage, industry fragmentation, pressures from environmental protection and green development. One of the major tasks for Chinese companies is to secure their supply of raw materials, and equally important is the structural adjustment of the industry. Mainland paper players should explore how to better utilize the forest resources concentrated in western China," Ms. Sun said.
To access Compass 2011: Global forest, paper, and packaging sector outlook, please visit www.deloitte.com/manufacturing.
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