Neels Blom
13 June 2008
Johannesburg — A GLOBAL survey by professional services firm PricewaterhouseCoopers (PwC) of the views of business leaders in the forestry, paper and packaging industries is a stark reminder to South African operations of their parochially precarious position in the sector.
The survey, CEO Perspectives, was presented to the media by PwC's paper and packaging director, Clive Suckling, in Sandton yesterday.
The report identifies major trends in the global industry driven by a declining demand in mature markets being replaced by a rapid increase in demand in emerging markets.
The survey has found that CEOs are deeply concerned about the decline of certain commodity segments, such as newsprint, and the weakening of the building products market in North America, but it also identifies new opportunities in the global industry. While the US subprime mortgage crisis has caused a drastic slowdown in housing in a culture where timber frames form the mainstay of housing construction, other executives expect that decline to be offset by the rapid increase in demand from emerging markets.
World economic forecasts are that by 2050, the seven largest emerging market economies (China, India, Brazil, Russia, Indonesia, Mexico and Turkey) will outstrip the world's largest developed economies (US, Japan, Germany, UK, France, Italy and Canada).
China, Suckling says, brings a new world-class paper-making plant on stream every four to six weeks.
These conditions mean there are new opportunities for companies that are able to adapt to the changes in fibre sources getting their products to the markets where demand is the highest. Operations based in the southern hemisphere, such as in Brazil , are at a great advantage in being able to exploit fast-growing species suited to pulp, such as eucalyptus.
Although eucalyptus is grown for pulp in SA, the industry's biggest constraint is the lack of suitable land for greenfield expansion. Forestry SA, which represents commercial forestry , says there already is a 30% shortfall in sawlogs, which are consumed primarily as lumber in the construction industry. That shortage, combined with the long-term expectation of a continuing construction boom locally and adverse growing conditions, makes it unlikely for the domestic industry to benefit from an increasing commoditisation of plantation pulp.
Lance Cooper, CEO of Mpumalanga-based forest products company York, confirms this view, saying that sawn timber is the highest-value forest product, followed by fibre for pulp and material for composite board.
It is equally unlikely that the slowdown in US housing construction would offset SA's sawlog shortage, because sawlogs are bulky and difficult to handle, making long-haul transport too expensive. It might be possible to import sawn timber, Cooper says, but that involves its own set of problems such as standardisation and building regulations.
Cooper does, however, agree with the main finding of the survey that many CEOs are eager to get back to the basics of the business; to deliver a standard product of high quality, on time and as economically as possible.
They believe the industry is becoming increasingly commoditised, and do not see extra services or better quality generating higher margins. Other CEOs, whose companies operate further down the value chain, are focusing on the opportunities for differentiating their products and examining their offering to ensure the extra services they offer are enhancing revenues.
Suckling also says the industry is at the heart of the leading debates in world affairs, such as climate change, sustainable development, the future of the planet's forests as carbon sinks, and the most appropriate use of fibre resources.
He says global industry's position in society is changing rapidly and it can play a key role in helping the world operate within its ecological systems. He says that surmounting these obstacles will require leadership, a collective approach and effective communication, particularly to drive home the industry's sustainability and environmental profile.
A CEO, who asked to remain anonymous , said : "(It is) not enough to be green, you have to tell people about it."
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