SINGAPORE, Aug. 20, 2001 (paperloop.com) - The Japanese giant, Oji Paper, has unveiled plans to add almost 1 million tonnes/yr of paper and board capacity in Asia, outside of Japan, by March 2006 at a total investment cost of Yen 150 billion ($1.2 billion). The group aims to carry out the ambitious expansion scheme through building greenfield mills or via mergers and acquisitions.
Oji has already taken the first step in the project. The group raised its stake in Japan Brazil Paper and Pulp Resources Development Company (JBP) in July to become the largest shareholder. JBP is a Japanese consortium that took over Brazil's Celulose Nipo-Brasileira (CENIBRA) last month, which has a bleached eucalyptus pulp capacity of 820,000 tonnes/yr. Oji shelled out Yen 18 billion for the additional JBP shares and plans to use the extra 250,000 tonnes/yr of pulp from CENIBRA to cater for its Asian expansions, according to Oji's spokesman, Takao Ito. 
Oji has set up a special unit, Asian Research Center, to promote the expansion scheme. The project team reports directly to Oji's new president, Shoichiro Suzuki, a senior engineer who assumed the top post in late June. Suzuki said in July that Oji aims to be an Asian group led from Japan and that Thailand and China are top priorities in its portfolio, according to Ito. He added that Oji's investment targets also include Indonesia and Vietnam. 
Oji's 1 million tonne/yr expansion goal includes building a large PM that has an uncoated and coated woodfree capacity of 500,000 tonnes/yr. The remainder of the 1 million tonne/yr capacity target will include 200,000 tonnes/yr of newsprint or lightweight coated paper, 150,000 tonnes/yr of board and 150,000 tonnes/yr of specialty grades used for communication papers. 
Oji will fund its Asian expansion projects through increased sales and its ongoing corporate restructuring program. The group aims to cut its workforce by 2,200 to 20,900 by March 2004. "We have reduced staff, paid off debts and reorganized group companies," Ito indicated. Oji expects to save Yen 8 billion/yr from workforce retrenchment and Yen 3 billion/yr through streamlining production. 
"We see the plan as realistic and thought-out," said two analysts at Nikko Salomon Smith Barney, Peter Cain and Paul Blamire, in a recent report. They estimated that Oji's scheme suggested a cost of $1,200/tonne, which is comparable to the reported cost of some projects in Asia in recent years. "In Japan, the most recent major capacity addition, Hokuetsu Paper's PM 8 at [the] Niigata [mill], cost approximately $1,825/tonne," the report continued. 
"Oji aims not to add substantial net capacity in Japan as it expands in Asia. This strategy gives it the option of producing locally for Asian markets or importing back to Japan if demand justifies," the report added. On top of that, the analysts believe that Oji's increased stake in CENIBRA was a sensible move "since it avoids dependence on Indonesian pulp". 
Oji has not yet announced any specific project under the Asian expansion scheme. But Suzuki revealed in July that Oji would not consider acquiring any of Asia Pulp & Paper's assets this year due to its complex debt issues, or making any investments in Indonesia given the country's political and economic uncertainty, Ito said. 
Cain believes that the most likely move for Oji is the expansion of its operations in Thailand. The group has a mill in Prachinburi which operates a 30,000 tonne/yr carbonless copy paper PM. The mill site has ample space for future growth and is adjacent to Advance Agro's (AA) plantation land. Cain pointed out that Oji owns a 5.5 percent stake in AA, but said Oji is unlikely to raise its stake in the joint venture which is still carrying out a debt restructuring program. Another factor in the country's favor is that, according to Ito, the production cost is 10 percent lower in Thailand than in Japan. 
Cain suggested that Oji may expand its newsprint and boxboard operations in Asia, rather than other grades where the market is already saturated. Japan imports around 60,000 tonnes/yr of newsprint, which means Oji could fill this gap. In addition, Oji is very good at producing high-quality boxboard, while Asian markets still rely a lot on imports, he added. 
As for Oji's plan to invest in a 500,000 tonne/yr coated and uncoated woodfree PM, Cain said that the group could install the unit in China but that it is not really viable. China is facing overcapacity in these grades in the near future due to a flurry of new capacity due to come online. On top of that, Stora Enso filed an application with the Chinese government for the approval of a scheme to invest in a 500,000 tonne/yr coated woodfree PM late last year. The project is still at the pre-planning stage though and the approval process can take three years or more. Ito admitted that Oji has not yet submitted any expansion proposals to the authorities.