The pulp and paper industry in Thailand is well positioned to take advantage of the strengths of the country’s well-established agricultural industry and strong export market. This combination of abundant raw materials and consistent demand have provided an attractive climate where paper producers have thrived.
As a result, manufacturing capacity and output have followed an upward trajectory in recent years, with data from the Central Bank of Thailand showing an increase in the paper and paper products manufacturing index from 117.4 in 2009 to 122.3 in 2010, from a base level of 100 in 2000.
Like virtually every other industry, the paper sector was thrown into turmoil in 2011 with a major earthquake striking Japan, followed by flooding in Thailand. Consequently, the production index dipped to 117.1 for 2011 but has since begun to recover and averaged 118.8 from January through May 2012. The turmoil caused by the two natural disasters resulted in an increase in the turnover of pulp stock in 2011 from 30 days to 37 days, as demand shrunk and production was interrupted in both Japan and Thailand, according to data from pulp and paper producer Double A.
SECTOR SNAPSHOT: Inextricably linked to Thailand’s export trade, a substantial proportion of the paper sector’s output is destined for the packaging industry, where it is utilised in goods from computer chips to potato crisps. Due to these connections, the country’s export growth in recent years has had a similarly positive cascading effect on the paper industry: 2011 exports from Thailand were valued at BT6.9trn ($220bn) compared to BT5.19trn ($165.6bn) in 2009 and BT6.18trn ($197.14bn) in 2010, according to statistics from the central bank. Kriengkrai Thiennukul, the chairman of the printing and packaging club of the Federation of Thai Industries (FTI), said in November 2011 that Thai printing and packaging industry exports totalled BT50bn ($1.6bn) through the first three quarters of 2011 despite flood damage to some 300 paper and pulp factories (about 10% of the country’s total).
DEMAND: In terms of demand, the economic cooling of the region’s largest pulp consumer, China, along with the addition of some 1.3m tonnes of new production capacity resulted in a weakening of prices for short fibre in early 2011. This trend was quickly reversed after Japanese manufacturers shut down in March 2011, leading to a decrease in supply.
Although domestic production and demand has since rebounded, the full effects of the floods have yet to run their course and are still creating challenges for the sector. Increasing production costs resulting from rising prices of raw materials, energy and labour will likely squeeze profit margins. In addition, the residual excess supply left over from the flooding will contribute to product pricing fluctuations while production capacity expansion will lead to intensified competition. Despite these challenges, overall economic momentum is expected to drive growth in the sector going forward.
“Rising income levels have translated into greater domestic demand for paper and stationary products in Thailand,” Virabongsa Ramangkura, the chairman of Double A’s executive board and the Bank of Thailand, told OBG. “Paper demand is set to continue growing between 5% and 10% per year over the next 20 years.”
Virabongsa also noted that domestic paper demand increases proportionally with GDP, such that as GDP grows by 1% the demand for paper as will correspondingly increase by 3%. Short-term demand is also expected to spike due to the impending national elections.
HOME-GROWN: Since the first paper mill opened in the country in 1923, the sector has steadily expanded its capacities and capabilities to reach present day levels, which include dozens of pulp and paper mills located throughout the country. Some of the largest paper producers now operating in Thailand include Siam Cement Group (SCG) subsidiary SCG Paper, the Panjapol Group and Double A. In addition to the Thailand-based producers, domestic consumption is also met by imported products – most notably from Singapore-based giant Asia Pulp and Paper (APP), which has substantial regional production assets in a number of countries, including China and Indonesia.
TOP OF THE STACK: The country’s largest pulp and paper producer is SCG Paper which, through its dozens of subsidiaries, produced a host of products, including packaging paper, corrugated containers and writing paper. Some of the largest plants include Thai Cane Paper Public, Siam Cellulose (located in Kanchanaburi) and Phoenix Pulp & Paper Public (based in Khon Kaen). The company also has production facilities in other countries including Malaysia, Singapore and Vietnam. Most recently, SCG acquired Vietnamese company Alcamax Packaging (Vietnam), including its holdings in AP Packaging (Hanoi) and Packamex (Vietnam).
Indicative of most companies operating in the sector, SCG has been posting steady growth since the global economic cooling of 2008-09. Profits increased in 2008, 2009 and 2010, according to company reports. The impact of the 2011 floods was felt, however, as profits edged down by 5%, even as total annual revenues displayed a 6% year-on-year increase.
Formerly known as Advance Agro Public until May 2010, the fully integrated Double A also operates a number of paper mills with a combined production capacity of 580,000 tonnes of short fibre pulp and 620,000 tonnes of printing and writing paper per annum. In 2011 the company produced 556,423 tonnes of printing and writing paper from its three mills, up from the 510,424 tonnes produced the previous year, along with 501,379 tonnes of pulp from two factories, up from 496,022 tonnes in 2010.
Double A is also expecting to further increase its capacity upon the completion of its new Advance Paper Mill 3 facility in the fourth quarter of 2012. The plant will have a capacity of 220,000 tonnes per year. The company also expanded into Bangladesh in 2011 with the establishment of the company Quality Paper Mill.
In addition to these expansions, other large companies are also entering the Thai market through acquisitions. Japan-based Nippon Paper Group joined the fray in 2012 when it formed a joint venture in June with SCG Paper to produce machine-glazed paper. The new company, Siam Nippon Industrial Paper, will operate a BT2.2bn ($70.2m) facility in the Ban Pong District, projected to have the capacity to produce 43,000 tonnes per year, beginning in mid-2014. Nippon Paper Group subsidiaries Nippon Paper Industries and Nippon Paper Trading will hold 5% and 50% stakes in the new venture, respectively, leaving SCG Paper with a 45% share.
A GREENER PAPER: Long criticised by environmentalists for production activity from deforestation to the use of caustic chemicals in production, the pulp and paper businesses have been making significant efforts in recent years to clean up their image. Looking to avoid the costly negative publicity which can lead to boycotts and contract cancellations, most major pulp and paper producers are implementing more environmentally friendly business practices.
Double A, for instance, has rolled out a paper product named Khan-Na, which uses trees grown along the edges of rice paddies, thereby avoiding land clearing and its associated forest destruction. SCG Paper introduced similar eco-friendly products of its own in 2011, such as “Green” corrugated cartons, which claim to require less paper, and a new form of paper made entirely from recycled materials, as certified from the Forest Stewardship Council.
Most large-scale paper producers are also involved in renewable power generation through the use of biomass-fired thermal power plants. These are designed to utilise the waste generated from production as fuel.
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