How much, and where, will paper demand grow in the years to come?

Excerpted from Pöyry's World Paper Markets 2020

World demand for paper and paperboard is forecast to grow by 2.1% annually in the long term, reaching an estimated 490 million tons by the year 2020, according to a recent paper demand and supply study.

The study, published by the global consulting group Pöyry, says demand growth prospects will vary considerably between regions with a fairly modest outlook for North America, Western Europe and Japan, while there is significant growth potential for Asia and Eastern Europe—India, China and Russia in particular. In volume terms, China, India and Russia will account for 35-70% of global incremental demand in 2004-2020, depending on the product area.

The Development of Demand Growth
World paper and paperboard demand has grown rapidly over three consecutive years, reaching a record level of 359 million tons in 2004. And despite the slackness in traditional markets, the global market has performed reasonably well thanks to the rapid growth of the Asia-Pacific and Eastern European markets.

Historically, the average paper and paperboard demand growth in the world was around 5-6% per year during the 1950s and 1960s, but slowed down to just over 3% annually during the 1970s, 1980s and 1990s, and to 2.4% per year in 2000-2004. However, in volume terms, the annual average growth has accelerated from about 3 million tons per year (tpy) in the 1950s to nearly 9 million tpy in the 1990s. Since 2000, the average volume growth has been over 8 million tpy.

Growth Regions Are Shifting
The shift in growth from west to east and from north to south has been particularly dramatic in 2001-2004, with Asia accounting for 64% of the global demand growth, while North America and Western Europe contributed only 11% and 10%, respectively. Considering its relatively small share of only 4% of global markets, Eastern Europe has been another rapidly growing market with 9% of the global demand growth during 2001-2004.

Long-term prospects in the West and Japan are at best moderate, while Eastern Europe and Asia—China in particular-are now acquiring key importance in the world's paper industry. Suppliers operating primarily in mature paper market areas will face challenges mainly at two frontlines: (1) competition against electronic media/online applications, and (2) relocation of industrial packaging/printing customers from high-cost markets to emerging low-cost regions. Native paper industries operating in emerging markets will face intense competition from global players pursuing entry onto these rapidly growing market regions.

Capacity Follows Growth Areas
The growth of paper and paperboard production is gradually shifting outside the traditional supply areas. The share of North America and Western Europe of the world's paper and paperboard production is forecast to decline from the current 55-56% to 44% by 2020. At the same time, Asia's share is expected to grow from the present 34% to 42%.

Asia will be responsible for over 60% of the global incremental production during 2004-2020. Within Asia, China and India will be the most rapidly growing production areas, accounting for 39% and 8% of the world's incremental production through 2020.

The production scenario for North America assumes only limited recovery of paper production through 2020 due to low investment activity in the region.

The growth of Europe's paper industry will be divided into two equal parts—Eastern and Western Europe—implying heavy structural changes in the European industry. Depending on future investment activity, Eastern Europe, including Russia, could develop into a significant supply and surplus region in the future.

NOTE: The forecast is conditional, based on a certain set of assumptions. One should consider the forecasts as base scenarios, and judge them against the assumptions made on the development of the paper industry's driving forces.

For more information about the study, visit the Pöyry's web site: www.poyry.com

PaperAge. Copyright © O'Brien Publications, Inc. All rights reserved.