Rising Demand in Asia, South America Will Sustain South African P&P Market

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Unlike consumption trends in other mature commodity sectors, paper consumption shows little sign of decoupling from economic growth. Paper consumption is projected to grow about 50% by 2010, compared with its demand patterns in 2000. A strong demand for pulp and paper commodities is expected from Asia Pacific and South American countries in particular from 2010 to 2012.

A newly released report by Frost & Sullivan, Cape Town, South Africa, titled Production and Investment Forecasts in the South African Pulp and Paper Market, finds that the market earned revenues of $4.73 billion in 2008. The sector invested $477.0 million on capital projects in 2008, and estimates the capital expenditure to be lower at $202.5 million in 2012.

"South Africa has an extraordinarily low cost base in terms of fiber production compared with other pulp and paper producing nations," says Frost & Sullivan Industry Analyst James Fungai Maposa. "This is due to the speedy tree growth rate and lower inherent energy costs."

A low-cost base gives South African pulp manufacturers a competitive advantage over other pulp producers globally. However, the South African pulp and paper industry is extremely energy intensive and exposed to risks posed by fluctuating energy prices, including those of fuel and electricity.

"The energy price rise has contributed to higher operational costs, negatively affecting the overall profitability of the market," explains Maposa. "Additionally, this has been exacerbated by the weak market prices of pulp and paper commodities resulting in a few companies incurring losses during the financial years of 2008 and 2009."

To overcome this setback, pulp and paper producers in South Africa should adopt strategies that are focused on increasing self-generation capacities as well as improving energy efficiencies at all production facilities, the report concludes.

"With the anticipated revival of the global economy as well as improvements in living standards around the world, certain sectors of the pulp and paper market, particularly chemical cellulose pulp, and coated graphic paper and tissue, are expected to grow steadily in the long-term," concludes Maposa. "This growth in demand is anticipated to contribute towards greater capacity utilization from 2010 and 2012 and a higher production output of the South African pulp and paper industry."

For more information about this study, e-mail Patrick Cairns, Corporate Communications, at patrick.cairns@frost.com, with full name, company name, title, telephone number, company e-mail address, company website, city, state, and country