Paper makers take up challenge of boosting overseas sales

TOKYO -- Japanese paper makers are striving to find ways to lift their bottom lines in the face of tough domestic business conditions, with some cutting their exports and one planning to do just the opposite.

Nippon Paper Group Inc. (3893) announced last summer it would virtually stop exporting, with the yen hitting the 70 level to the dollar. Oji Paper Co. (3861) has also scaled down its exports due to unprofitability.

The paper manufacturers have focused more on domestic operations to make up for supply disruptions caused by the earthquake and tsunami last March. Japan's paper exports tumbled by more than 40% on the year in 2011, according to the Japan Paper Association.

Power of automation

The news last November that Hokuetsu Kishu Paper Co. (3865) would increase exports came as a complete surprise to Kunio Suzuki, president of Mitsubishi Paper Mills Ltd. (3864). Behind the bold decision to ship more products overseas is a cutting-edge paper making machine at a factory in Niigata Prefecture, where Hokuetsu Kishu Paper was founded.

The N9, brought online in 2008, is one of the world's largest such machines, measuring 223x11 meters, and few workers are needed to operate it.

"If we try to be competitive in the global market, we will work harder at cutting costs to make a profit," said Sekio Kishimoto, president of Hokuetsu Kishu Paper. "And if our capacity utilization rate goes up, it will also help our competitiveness at home."

Its exports are expected to total 190,000 tons in fiscal 2011, less than a year earlier, because domestic supply has been its top priority. The company plans to boost the annual figure to 300,000 tons by fiscal 2013.

Overseas expansion

Oji Paper has reduced exports but nevertheless targets an overseas sales ratio of 25% for fiscal 2015, as it aims to shore up earnings through M&As abroad. The firm set aside about 200 billion yen for fiscal 2011-2013 to improve its earnings structure. Of that, 100 billion yen is "intended for M&A activity," said President Kazuhisa Shinoda.

The M&A activity centers on Southeast Asia. Oji Paper has placed four firms under its umbrella so far, including Malaysia's leading cardboard maker in April 2010. As a result, the number of its plants in the region has increased from three to 16. In fiscal 2015, the Japanese company aims to double its sales to 100 billion yen.

In Japan, paper demand grew in line with domestic economic growth. However, output peaked out in 2000 at 32 million tons and fell by more than 10% to 28 million tons in 2010. Still, Japan is the world's third-largest paper market after China and the U.S. Nevertheless, "With sluggish domestic demand, we must continue to take on challenges overseas," said Oji Paper Chairman Shoichiro Suzuki.

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