Tissue World Magazine
Alexandra Stuthridge, Technical Business Manager, BioProducts Institute (BPI)

The recent economic slowdown in China has hit a number of relatively nascent industry sectors hard. One sector that’s been particularly badly affected is the pulp and paper market. In addition to demand for pulp and paper-based goods like tissue falling as the nation’s middle classes find household budgets squeezed, the Chinese government has imposed and
enforced strict environmental rules, with dramatic effect.

According to an estimate by Pictet Asset Management more than 1,000 smaller pulp and paper mills have been forced to close in China over the last five years thanks to the country’s “new-found environmentalism,” and it’s anticipated that many more will be shuttered over the coming years.

So what do these seismic changes to the Chinese pulp and paper industry mean for Western businesses who struggle to compete with Asian rivals on price?

The current situation in China is incredibly complex. Hawkins Wright, a specialist consultancy with in-depth knowledge of the country’s pulp and paper market, says it splits the industry in China into two distinct categories – ‘old China’ and ‘new China’.

The old market refers to pre-1995 when the country created around 30 million tonnes of all grades of paper and board, much of it made from rice straw and waste paper. But then in the late-1990s the country started to install large, high quality industrial machines.

“They built machines before the demand caught up,” explains Roger Wright, founder of Hawkins Wright. As a result, until relatively recently it wasn’t a greatly profitable sector for domestic Chinese businesses.

Wright says the household tissue market probably slightly lagged behind the wider pulp and paper industry, with producers only starting to import – and then build – large, good quality machines around ten years ago. Since then they have been making up for lost time, according to Wright.

“The production of hygienic paper has increased dramatically,” he says. “China is probably the largest market in the world. They’re exporting tissue in jumbo rolls to Australia and other parts of the world.”

He adds that the local tissue market differs from the rest of the world as the production of tissue locally is heavily reliant on virgin pulp whereas in Europe and America around half of the tissue produced could use as much as 50% waste paper.

But where the market is similar to the rest of the world is that there has been significant consolidation and capacity rationalisation in China and some of this has been caused by the government’s recent green clampdown.

“It used to be just lip service and it wasn’t very well policed, but in the last two years the environment has been taken more seriously. Environmental regulations are stricter and they are being more strictly enforced.”

It’s as a result of this more rigorous regime that those thousand plus mills
have been forced to close. However, Wright is quick to point out that these weren’t conventional operations comparable to what you would typically see in Western markets.

“Sometimes these mills only operated for a few months of the year after the rice harvest when they used straw to make pulp and this would be sold locally for cash. The tissue they made was basically for wrapping or decorative purposes – it wasn’t hygienic tissue. It’s those old and small machines at small mills that have been closed down.”

The larger Chinese manufacturers using more modern machinery have been slowly greening up their act, partly to comply with the new regulatory regime and partly to assuage growing customer concerns about the environment, but many of them still lag behind tissue companies elsewhere in the world who put in place strict policies in this regard many years ago.

Take the example of the Gomà- Camps Group. According to Olga Rubio, the group’s marketing director, environmental management is an “integral and fundamental part” of the group’s activity and it is “committed to improving the quality of this management by providing the necessary resources”.

“For example, the entire range of recycled tissue is made exclusively from 100% recycled paper, based on recovered raw materials and demonstrable traceability, not containing any virgin cellulose fibre,” says Rubio.

“Another example of our commitment is that we work with our suppliers to
improve the sustainability of all the raw materials and by-products that we currently use, with the aim of making them more and more respectful.”

She adds that in the coming years the strategy of Gomà-Camps is to “continue working and striving to be more sustainable and respectful”.

These are values that Frank Millward, sales and marketing director at Leicester Tissue Company, knows all too well. He says the company has one of the lowest carbon footprints in the UK for a tissue manufacturer and plans to “integrate a mill investment” in 2022 that will be as “environmental as practically possible given the technology available”.

Millward adds that the company strives to exceed all benchmarks and industry initiatives. “As an example, we are striving to remove our dependence on plastic packaging and move towards friendlier alternatives. Customers and consumers are increasingly aware of the damage that we are doing to our planet and yet we still need consumables, such as toilet paper. Our customers listen to their shoppers and we listen to both. The consumer’s decision drivers at point of purchase are a mixture of quality/value and environmental – depending on the demographic of the shopper. But all are important.”

The environmental values espoused by the likes of Leicester Tissue Company are particularly important to household tissue brands like Better All Round, which aspire to work with suppliers that care about the impact they have on the planet, according to the businesses’ founder Oday Abbosh.

“It’s definitely in the top three of what we look for in a supplier which is why we have stringent criteria that suppliers must meet to work with us,” says Abbosh.

“First and foremost, we need all suppliers to comply with ethical trading standards and local manufacturing legislation. We’re very rigorous about ongoing audits to ensure standards don’t slip so all our suppliers must be open to this. If we are happy these are met, we also interrogate their environmental impact and their approach, to ensure it is aligned with our commitment to minimising our impact on the planet. Furthermore, we seek collaborative working partners who share our values and believe in the long term importance of continually reviewing working practices to grow and improve.”

Working collaboratively with customers is an approach that Juan Corzo
Jr, vice president at South Florida Tissue Paper Co, is a big advocate of. He says that historically the three main requests from customers were price, quality and service. “However, in recent years, we have been asked a fourth request, which is a commitment to the environment,” says Corzo Jr.

As a result the company has taken a number of steps to upgrade its facility and operations to minimise the environmental impact.

“Among the changes we have made, we have changed our equipment from gas-powered to electrical; all excess tissue and towel, as well as cardboard and core stock, and all plastic not used is recycled. Also, the use of recycling bins has been implemented throughout the facility. Another area that we have improved is the reduction of printing paper for digital in communication.”

The challenge for his business – as it is for businesses all over the globe – is
putting these measures in place without significantly raising prices. It’s a difficult juggling act particularly considering recent activity in Asia.

“Changes in the Asian supply chain have had a significant adverse
impact on the cost price of fibre [raw materials] in the UK and Europe in the last 12 months,” says Millward. “We are watching the position with interest – as we are Brexit – and are prepared to align our strategy when conditions become more fully transparent.”

Also keeping a watching brief on Asian markets is Joan Vila, CEO of LC
Paper Group. “The fact is that the price of pulp to China has fallen significantly and the gap to the price of Europe is currently $-70/t,” says Vila.

“It is true that environmental measures can be a support for production in Europe. We work on this aspect and have developed a footprint ratio to visualise the product difference, but our vision of the international market
is that today we cannot compete for price with Indonesia or with China.”

Although Western businesses may not be able to compete on price with Asian operators many believe they offer better quality products and higher standard environmental credentials, which are both things that are worth paying that little bit extra for.

“Chinese paper products were always a competition for our company, considering that some customers were willing to sacrifice quality for price,” says Corzo Jr. “We also had customers that wanted to stay away from Chinese manufacturers that valued environmental responsibilities more. This allowed us to compete with Chinese products even if our price point was not where it needed to be.”

At the moment many Western businesses may have the upper hand
over rivals on the other side of the globe when it comes to abiding by stringent environmental standards, but as the Chinese government continues its clampdown on high polluting industry sectors, we could see this vital point of difference erode over the coming years.