Domestic

Upgrading is order of the day for the paper sector

By Wang Ying (China Daily)
Updated: 2010-08-10 11:10

SHANGHAI - A total of 279 paper plants are on the closure list issued by the Ministry of Industry and Information Technology in the government's latest bid to phase out high-polluting and energy-intensive industries.

Analysts said the measure will help facilitate industrial upgrading in the papermaking industry and strengthen the sector's major players such as Nine Dragons Paper (Holding) Ltd, which is owned by Zhang Yin, one of the richest women in China.

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Although Nine Dragons Paper has two mills facing shutdown, in Inner Mongolia autonomous region and Sichuan province, the Guangzhou-based papermaker said the move will have little impact.

The two plants have an annual output of 21,500 tons and 34,000 tons respectively, negligible compared with the company's annual output of 7 million tons, said Zhu Jia, an analyst from Qilu Securities.

"The ministry's decision is in line with our plan to replace the outdated equipment," said Yang Yueshuang, a spokeswoman for Nine Dragons Paper, China's largest containerboard maker.

"Both of the projects were already operational before Nine Dragons invested in them. It is also our objective to replace outdated facilities with new ones," said Yang.

Analysts said the forced closure of low-capacity paper mills will help Nine Dragons boost its market share during the industrial shake-up.

"The closure of more than 200 paper mills will extensively enhance the profitability and market share of the existing large paper mills," said Zhu. The affected 279 paper mills have a total annual production capacity of 4.65 million tons of paper.

According to Wang Xudong of China Merchants Securities, the majority of the blacklisted paper producers each produce less than 30,000 tons of paper annually.

"Their existence has little effect on the overall industry but poses a threat to the environment," said Wang. China manufactured more than 90 million tons of paper products in 2009.

The Hong Kong-listed company reported a net profit of 1.06 billion yuan ($157 million) between July and December 2009, up 320.7 percent year-on-year.

That contrasts sharply with its performance during the economic downturn. The company's debt to equity ratio reached 98.9 percent with a total of HK$12.3 billion ($1.58 billion) debts by the end of 2008.

"Through cost cutting, focusing on domestic market and successful financing, Nine Dragons survived and bounced back," said Zhang Yin, founder and chairwoman of the company.

Nine Dragons became more focused on the domestic market after the crisis, said Zhu. In April, Nine Dragons invested $1.08 billion to build a paper mill for high-end packaging paper with an annual capacity of 2 million tons. Yang estimated the Hong Kong-listed company will reach an annual capacity of 10 million tons by 2012.

Shares of Nine Dragons shed 1.87 percent to reach 11.52 yuan apiece in Hong Kong on Monday.