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Rise in South American pulp production will have impact on SA’s paper manufacturers export strategies

South America’s emergence as a world leader in the production of chemical pulp to the global forest, paper and packaging market and their expected dominance of world markets by 2020, will have implications for South African paper manufacturers and their export strategies, says professional services firm Deloitte.

Commenting on a global Deloitte report entitled: ‘2013 Global forest, paper and packaging trend watch – a changing landscape: South America’s influence on global markets’, Roy Campbell, a partner and specialist on SA’s pulp and paper industry at Deloitte, says the swing to South America as a supplier of between 20 and 30 million tonnes of chemical pulp by the year 2020, will exacerbate the oversupply of pulp to global markets.

Already, says Campbell, there is global supply overcapacity and with the European economy still struggling to perform post the 2008 financial crisis, demand for pulp in that region is not growing. With seven to eight million tonnes of South American pulp expected to be available in 2014 for the export market and with overall global demand light, South America’s export competitiveness might be tied to their most significant trading partner, China, in the years to come as China remains the largest global consumer of chemical pulp.

This production, adds Campbell, is expected to result in lower Dollar prices for the commodity, placing exports of pulp from South Africa under pressure. An additional factor influencing this change in global consumption patterns for local manufacturers will be the physical distance between South Africa and primary markets for pulp.

“South America, which will have the outputs of five new major pulp manufacturers entering the market, is closer to the Eastern markets, China and North America. In addition they will be able to exploit the production advantages offered by state-of-the-art equipment, whereas South African plants are ageing and cannot compete with the low-cost and high volumes being produced in South America.
“On the positive side, South Africa is currently one of the world’s largest and lowest cost producers of a more refined form of chemical pulp, referred to as chemical cellulose or dissolving wood pulp. This product offers us the greatest benefits when it comes to exporting from the pulp and paper manufacturing sector. Chemical cellulose is used in the production of vicose staple fibre which is a product used by the textile industry. As a cotton substitute, the market for viscose is growing. Whereas paper usage is impacted by the digital revolution and the paperless office, using pulp for clothing still has huge market potential.”

Conversions to the production facilities at pulp and paper producer SAPPI in Mpumalanga would soon see an additional 300 000 tonnes of chemical cellulose being produced. This would add to the outputs of SAIICOR in KwaZulu-Natal, the single-largest producer in the world, which produces more than  750 000 tonnes of the commodity annually.

 “We cannot compete internationally with South America in the production of chemical pulp for international paper manufacture, nor compete with countries like China for the production of paper. We can, however, exploit niche markets like chemical cellulose,” says Campbell.

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