Pulp and paper: competitiveness
Apart from a slight fall in 2005, production in the "pulp, paper and paper products" sector increased steadily by more than 12% between 2002 and 2007. However, in 2008, production was 2.5% lower than in 2007, and turnover in 2008 was almost the same as in 2007, marking a change in the trend from previous years. Employment fell by 15% between 2000 and 2008.
According to the latest structural data available, there were 19,377 firms employing 715,000 people in the sector in 2006. Turnover reached €166 billion and an added value of €41 billion. Wage-adjusted labour productivity (the relationship between apparent labour productivity and average personnel costs) was 145% and the gross operating rate (the share of operating surplus in turnover) was 9.9%. In 2006, "pulp manufacturing" represented 5% of added value and 2% of employment, "paper manufacturing" 39% and 29% and "articles of paper and paperboard" 56% and 69% respectively.
With rising pressure on primary raw materials, the use of recovered raw materials is on the increase. Today, about half of EU paper production is based on recovered paper, a growth of 25% since 1998. Paper recovery and recycling, linked to increased processing efficiency, have allowed a substantial production increase without the need to use more new wood.
As is the case for other forest-based industries, the costs of energy and wood, which provides about half of the source of fibre for paper-making, play a pivotal role in the pulp and paper sector. The overall costs for paper-making break down as follows:
- fibres 32%
- capital 18%
- personnel 14%
- energy 13%
- chemicals 12%.
The sector has high levels of paper recovery and recycling and provides renewable energy by burning wood bark and rejected wood, as well as using black liquors from chemical pulping to produce CHP and steam. Overall, just over half the process-making energy consumed is produced in this way. Some pulp mills even export electricity to the grid.
Although paper production in the US peaked several years ago and has been declining for certain graph papers, during the last two decades overall production in the EU has continued to rise, even though grades such as newsprint have slowed.
As a result, over the last two decades, the growth of EU paper production has averaged + 2.8% p.a., whilst consumption has climbed on average by + 2.5% p.a. Whilst some graphics grades in the older 15 EU Member States are maturing, the expansion of IT for business, education and packaging is leading to faster growth in the new Member States. Carbon paper production has declined. The converting sector has not seen much overall growth, but an ageing population means a long-term increase in household and sanitary products, but a slowing down for certain stationery goods. The stable but ageing EU population offers little long-term scope for growth in overall demand, especially once the 'catch-up' phase in the new EU Member States has come to an end. EU pulp production has grown more slowly, averaging +1.6% p.a. since 1991. This is mainly due to increased use of recycled fibre for paper-making, but also because some old pulp mills have closed, thus partially offsetting increased output from the upgrades or re-builds of remaining plants. There have been very few opportunities in the EU for new pulp mills, since EU companies find the sub-tropics more attractive for their "green-field" investments.
Non-EU competitors do not have to bear the high costs of compliance with strict environmental regulation which prevail in the EU. Since most pulp and paper grades are effectively commodities, prices are set by lowest-cost producers on the global market. The continuing development of electronic media has meant a reduction in certain paper-based printing and publishing segments, such as newsprint. Distribution patterns are also changing, for example smaller, local print batches of publications. This is partly to offset increasing road transport costs. Nonetheless, other "smart" applications for technology, such as intelligent paper and packaging, are providing new market opportunities.
- sustainable and increased forest resources, producing most of the EU's fresh wood raw material
- high level expertise and continuous innovation in: raw materials collection, recovery and use, products, production processes and distribution
- excellent sectoral knowledge centres, including in RTD
- proximity of large, sophisticated domestic market and nearby export markets.
- non-mobilisation of legally harvestable but uncut wood growth from EU forests
- high fixed and variable costs, including: wood, chemicals, energy and (for conversion) labour
- investments becoming more attractive in the sub-tropical regions
- poor public image, especially among young people.
- use of wood for paper products and renewable energy (for wood manufacturing and grid supply)
- even higher level of paper recovery, re-use and recycling, including energy extraction
- development of innovative and added-value products and systems, including "smart papers" and packaging
- export markets (e.g. India, Mercosur, Near East) for added-value items such as security and other high-grade graphic papers, as well as speciality products
- ageing population, with growing need for hygiene products.
- increasing competition for wood raw materials from the renewable energy sector
- growing supply of low-cost and high-quality imports of commodity-grade papers, especially from China
- restricted supply of imported wood raw material from Russia
- continuing market access restrictions (e.g. India, Mercosur; Near East)
- phytosanitary issues (e.g. pinewood nematode outbreak risks reducing raw wood supply from EU forests)
- impact of climate change on forest health and productivity
- indirect impact of competition on fertile land in terms of agriculture and bio-energy crops.
Areas of growth within the sector
Intelligent papers potentially have very wide applications, with high added value. Increased management of both primary and secondary fibre supplies and their efficient use, including for energy within the pulp, paper and converting industries and elsewhere, offer the prospect of diversification.
The pulp manufacturing industry consists for the most part of large and very large firms, often multi-nationals, which are frequently involved with paper operations. They are very capital-intensive industries, as a new state-of-the-art pulp mill costs around €1 billion, or even more if it is part of a paper mill. Paper mills for "commodity grades" of paper, i.e. those intended for further cutting into sheets or rolls or subsequent conversion into products, are most often also large or very large and also quite capital-intensive, especially if there are several paper machines on one site. Plants producing speciality grades may be smaller. Conversely, most converting mills, i.e. those producing usable paper products, are SMEs. Ranked by the CR10 index for concentration (i.e. market share of the ten biggest suppliers), concentration in the paper-making subsector is as follows: high (> 85%) for coated mechanical paper, uncoated mechanical paper, newsprint and coated wood free paper; medium (65% to 85%) for cardboard, market pulp, and tissue paper; low (< 65%) for uncoated wood, free, container board and wrapping papers.
Machine design, development and manufacture, together with chemicals for pulping, surfacing and printing, as well as fibre development (including genetic work), are the main related sectors. Finance and consultancy also play important roles.