Nine Dragons Paper has grown at an incredibly rapid rate over the past two decades to become one of the largest papermaking companies in the world.
Hugh O’Brian
Mainly focusing on containerboard, Nine Dragons at the end of 2012 had an annual production capacity of approximately 12.5 million tonnes. As a way to diversify, while still remaining highly-focused on containerboard, the company is considering the tissue business as part of its long-term strategy. We recently spoke with the chairlady and founder of the company, Ms. Yan Cheung, who started essentially with nothing and has become, by various measures, the richest person in China and the wealthiest self-made woman in the world.
“We are very proud of our contribution to the environment, both in China and globally,” explains Ms. Cheung, “as we have reduced the burden on the planet enormously by recycling more than ten million tonnes of waste paper a year that might otherwise go to landfills or dumps. But we have taken things a further step, to do better than the standards required by the government. It is already taken for granted that we comply with government regulations with regard to emissions from our plants. Our goal is to have no solid waste leaving our plant sites. For example, we are now burning solid waste to create clean energy.”
A long way from waste paper trading in Hong Kong. Ms. Cheung’s entry into the paper business started in Hong Kong in the early 1980s with a simple trading & importing of waste paper into Mainland China for use in paper mills. “Up until that point the majority of paper mills in China were using mainly virgin pulp and non-wood fibers such as straw. I saw an opportunity and they saw a source of better papermaking fiber. But the supply in Hong Kong was rather limited so in the early 1990s I moved to Los Angeles in the United States to build a bigger trading business for shipping to Mainland China. The US is the biggest recycled fiber source in the world and this made a lot of sense.” Pretty soon she realized that there was more money to be made in converting recycled paper to new paper than in simply selling it to paper mills. Starting in the late 1990s Nine Dragons Paper was formed and the company installed its first paper machine, making containerboard for supplying local box makers. One thing very rapidly led to another and over the course of 15 years Nine Dragons has installed and started up over 30 large-scale paper machines, making it the largest containerboard company in Asia. “We could never have imagined that we would grow this rapidly, which is at least three or four times faster than our wildest dreams. By the end of 2013 we will have a total annual production capacity of 13.5 million tonnes and by the end of 2016 this will exceed 14.5 million tonnes. However I must say that we realize we cannot continue to grow at this enormously fast pace and we are expecting that the period during 2013-16 will be what we call ‘prudent and conservative growth’.”
Tissue business is a good complement. Rumors have circulated in the Chinese market for quite a while that Nine Dragons is considering entering the tissue business. Ms. Cheung makes it clear that that this may be considered in their long-term future plans. “We see tissue paper as a good complement to our existing containerboard business, where we are already the very clear leader. So as a strategic direction we will certainly move into tissue in the future. We see the complementary nature of these two products and we like the diversification it gives to balance the ups and downs of different paper grades. Particularly in recent years we’ve seen much economic turmoil and lots of uncertainties at the macro level which could affect our business performance.” Ms. Cheung points out that there are strong synergies with their existing containerboard mills throughout China because they are all strategically located near the nation’s largest consumption centers. With the existing management expertise, infrastructure, and mill sites already in place, this investment can be shared over a very big underlying production base. Therefore she says it should be quite simple to put in one or two tissue machines. “Tissue is a very regional market and you don’t ship the products very far. So we feel that the combination of our mill locations and the fact that tissue is not shipped far make it interesting to study the possibility to invest in tissue machines at some existing plants. There are also synergies with our sales channels as we think we can build our tissue sales force based on the existing containerboard salesforce, which we would extend into the tissue distribution channels. This would help us make good use of the already developed and mature sales team, to which we will add the specialized characteristics needed for the tissue sales network as well.”
Recycled fiber considered for tissue. Ms. Cheung also sees that there is a big trend in the paper business to use more recycled paper. “Therefore we will certainly consider using recycled fiber for our tissue paper as well. In fact, now we are already using recycled fiber to produce high quality printing and writing paper, which has been very successful. In the past we were all thinking about pulp only, but now it has changed very rapidly to recycled fiber for printing and writing grades. In addition, looking from a more pragmatic aspect, recycled fiber also allows us to offer a lower price to the market. We get both pricing and environmental benefits in this way.” For tissue, both pulp as well as recycled fiber would be used as there is a wide spectrum of market demands in a country as large as China, says Ms. Cheung. “There is certainly demand at the low end of the quality spectrum because in China we have an enormously large population of workers and farmers who are very price sensitive and looking for value products. Even in the United States, in a place such as Walmart you can see clear evidence that recycled fiber-based tissue is growing in importance.”
No plans to be a tissue giant. “So it is certainly correct to say that we may consider entering the tissue market in the long run, according to regional market needs. We may consider more than one location and our mill here in Dongguan is likely one of them. However, we do not think we will be - or are not targeting to become - a leader in the tissue market. This is just a strategy to give us balance and diversification.”
Challenges for the future. As far as the challenges for the coming years, Ms. Cheung says that the most important is to improve profits. “In the current operating environment, we still have a lot of small containerboard mills that compete with us but do not invest anything for pollution and environmental control. That gives them a financial advantage that is difficult for us to compete against. Of course they are progressively being closed down by the government, and also by the market because they are not competitive, but it is a process that takes time because there are so many of them.” “We also have to deal with the world economic situation, which is in a pretty difficult state and the recovery is much slower than we have seen after 2008. We want to bring our debt and financing expenses down, which will help bring profits up. We are making progress and we can see that 2013 is definitely going to be better than 2012.”
Secret of success. As a conclusion, Ms. Cheung explains that focus has been a key ingredient in her success. “I have remained extremely focused on the paper business, with few distractions. As my business and wealth has grown there are people saying that I should enter other sectors that could be even more profitable, such as property. But I have no desire to side-track to other business sectors, as I am very happy with the paper business and that strategy has worked very well.” *