Domtar invests in Chinese paper conversion operations
$35 million investment could realize up to $150 million in annual sales, chief executive says
MONTREAL—Domtar Inc. is dipping its toe into the Chinese market by opening two paper converting operations early next year.
The Montreal-based company already sells up to US$700 million worth of pulp to China from Kamloops, B.C. and other facilities and plans to open a converting, sales and distribution business in Guangdong.
The southern Chinese area is home to the country’s largest concentration of commercial printers.
Paper to be cut and rolled will be sourced from within China and the project could eventually employ about 300 to 400 workers, including sales staff.
Domtar is investing $35 million in the project but could eventually realize $100 million to $150 million in annual sales, says chief executive John Williams.
“I’d be disappointed if we weren’t moving 150,000 to 200,000 tonnes over the next two to three years,” he says.
The project will allow Domtar to slowly enter the world’s fastest growing paper market without investing hundreds of millions of dollars by opening a paper machine.
“It’s not going to be a dramatic contributor in the short term. The way we’re seeing it is a way of learning our way in that marketplace, more than a major contributor.”
It marks Domtar’s first such converting effort abroad and analysts said it’s the first by a Canadian company in China.
Two or three additional converting operations could be added once it evaluates revenues to help offset a gradual decline in paper sales at home.
The go-ahead followed an intensive market study that looked at the location of buyers and their purchasing behaviour.
Stephen Atkinson of BMO Capital Markets said the Chinese move makes sense because the capital costs are low and carry low risk.
“The people they are putting to do it are very experienced so we do expect them to make it a viable venture but at the same time it’s a beginning and it could lead to better things down the road.”
The location of the operations near a port would be useful if Domtar eventually wants to import paper shipments from North America.