China Shengda Packaging to Build New Paperboard Mill
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China Shengda Packaging Group Inc., Hangzhou, China, this week reported that it will purchase land use rights for a 166,533 m2 plot of land in Yancheng City, Jiangsu Province, China for $11.4 million, on which to build a new mill that will produce packaging grades of paperboard and containerboard. The company plans to build the new facility in two phases.
Phase I, expected to be completed by the end of 2011, will provide a production of capacity of 100,000 - 150,000 metric tpy of packaging boards and will cost an estimated $34.2 million to construct, including the cost of acquiring the land use rights. Phase II, expected to be completed by the end of 2012, will provide an additional 100,000 - 150,000 metric tpy of capacity and will cost an estimated $18.2 million. The company plans to fund the purchase of the land use rights and construction of the new plant through the proceeds received from its recently closed equity financing and internal cash generation.
"We had initially explored opportunities to acquire a paper manufacturing company with an annual capacity of 250,000 to 300,000 metric tpy to achieve vertical integration of our production process," said Daliang Teng, CEO of China Shengda Packaging. "However, given the increase in valuations among potential targets and the level of proceeds from the company's recent equity raise, we concluded it would be more cost effective for the company and our shareholders to build a new plant to fulfill our strategic objectives.
"By integrating upstream through the construction of a paper manufacturing plant, we believe we will be able to better manage our raw material costs and, more importantly, extend our product improvement and development capability to the raw paper production level. We currently purchase raw paper from our PRC suppliers. As raw paper constitutes approximately 70% of our cost of goods sold, we expect that this vertical integration will enable us to more effectively manage our production costs and control the supply and the quality of our raw materials.
"Upon completion of this new factory, we will start our value chain as early as papermaking and all the way through to producing corrugated cartons and providing packaging solutions to our customers. We believe that by streamlining our production process in this way we will enjoy cost benefits as well as be able to offer our customers more innovative, customized, and high quality packaging solutions," Teng explained.
The corrugated paper packaging market in China is highly fragmented, Teng noted. There are approximately 20,000 players in China with the top 10 accounting for less than 10% market share. Vertical integration is expected to be a future trend in China's paper packaging industry.
China Shengda Packaging Group is principally engaged in the design, manufacture, and sale of flexo-printed and color-printed corrugated paper cartons in a variety of sizes and strengths. It also manufactures corrugated paperboards, which are used for the production of its flexo-printed and color-printed cartons.
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