As previously announced, Orient has been working on renovating a small production line that was idled in 2007. The renovated line is expected to produce up to 10,000 metric tpy of digital photo base paper and/or other high profit margin specialty papers, including security paper with certain anti-counterfeit properties. The company anticipates completing renovation after the installation of new power supply units at the workshop in July. If test operations are successful, Orient expects to begin producing digital photo base paper to supply production of its two existing digital photo paper coating lines by the end of the third quarter this year.
Orient says that its new 360,000 metric tpy corrugating medium paper production line (shown under construction in the photo below) is making significant progress and is on schedule to begin trial production in early July. With the addition of this new production line, the company expects total corrugating medium paper production in 2011 to reach approximately 199,500 - 220,500 metric tons, of which up to 98,000 metric tons are expected to be contributed by the new production line.
According to Orient, the Ministry of Industry and Information Technology of the People's Republic of China (MITT) recently ordered the elimination of outdated production capacity for various industries for the year 2011, including the closure of approximately 7.4 million metric tons of paper production capacity. The government mandated closure of paper capacity in 2011 represents some 7.4% of the current 100 million metric tpy of paper production capacity in China, up 72% from 4.3 million metric tpy eliminated in 2010. It is believed that a majority of the paper production capacity to be eliminated is concentrated in northern China and includes cultural paper, low-grade packaging paper, and household paper. The paper production capacity closures in the Henan Province and Hebei Province this year will be approximately 1.9 million metric tons and 1.1 million metric tons, respectively, according to the provincial level allocation by MITT.
Zhenyong Liu, chairman and CEO of Orient Paper, noted that "with the new round of government-mandated closures of regional small and inefficient paper production capacity, we anticipate the pricing pressure will further intensify given reduced supply and stronger demand from our customers in the second half of the year. We believe our new corrugating medium paper capacity, which we expect to come online in July, will play an important role in our ability to meet the increasing market demand. The paper industry in the Henan, Hebei, Hunan, and Guangdong Provinces account for a majority of capacity eliminations, which hopefully will further strengthen our leading market position in northern China. Looking into the future, we plan to develop our expertise to offer new paper products such as security paper with anti-counterfeit properties, to further expand our product portfolio, and increase market share."
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