Asia Pulp & Paper, a relatively young paper maker founded in 1979, has grown to become one of the world’s largest integrated pulp and paper entities with a raft of new environmental targets and products in the Canadian market.
Asia Pulp & Paper Group in 2013 introduced its Forest Conservation Policy as a large-scale environmental initiative based on zero deforestation. The policy would require a range of investments by Asia Pulp & Paper (APP) with a goal to put an immediate end to sourcing pulpwood materials from suppliers involved with natural forest clearance.
The company, with its primary roots in both China and Indonesia, subsequently engaged leading environmental organizations like Rainforest Alliance, Deltares (a research institute) and Greenpeace to evaluate this unprecedented Forest Conservation Policy (FCP). APP opened up its operations to allow these organizations to track its FCP implementation progress.
Over the next two years, APP continued to work on its environmental stance with initiatives like the world’s first-ever retirement of commercial plantations on tropical peatland – some 7,000 acres – and a program to restore and conserve one million hectares of forest across Indonesia, primarily within the Bukit Tigapuluh ecosystem, home to the endangered Sumatran Tiger. These massive initiatives were in response to mounting environmental criticisms leveled against APP over its practices.
As a result of facing the criticism head on, APP has invested millions of dollars into establishing a stronger environmental position and, at the same time, reorganized its operations into one of the most modern structures across the paper world.
While most other paper makers are running legacy equipment, often shutting down equipment based on unmanageable fluctuations in supply and demand, APP over the past 10 years has brought on line three new paper machines designed with technical flexibility to respond to new market demands.
The company, driven by its own unique eucalyptus plantations, is now seen as the world’s most vertically integrated paper producers. This position has allowed APP’s Canadian operation, focused solely on moving paper as opposed to diversifying into equipment distribution, to reengage to domestic printing industry and become one of Canada’s most powerful paper suppliers.
New Canadian model
APP’s new direction in Canadian printing primarily began in 2010 when David Chin became President of APP Canada. One of his primary goals was to become a preferred paper supplier to Canada’s Tier One printing operations. This would require new levels of market penetration for the company, which had traditionally focused on the retail market as a paper merchant. Chin instead began to build from APP’s long presence in the Canadian market to establish direct relationships with printers, as opposed to working through distributors.
“We are not newcomers in the market. We have been here since 1998 so we are a very stable entity and we also have ample stock. If I am not mistaken we are the largest importer for commercial printing paper in Canada and we also have the most inventory of commercial paper in Canada,” says Chin. “We have made some giant leaps with Tier One customers, the top 10 printers in Canada, mainly because of our service and paper quality.”
Chin explains APP Canada purposely hires local people, as opposed to transferring people from overseas operations, to help build its presence in the domestic market. “We are truly a Canadian company. We are growing the Canadian economy and not just growing in Asia.”
Much of APP Canada’s growth in the commercial printing market over the past six years can be tied to the operation’s ability to leverage the complete production integration of its parent company, which has spent the past decade building one of the world’s most modern end-to-end paper operations.
“Our advantage is really integration all of our pulping facilities are a short drive away from our production facilities, if not on site,” says Ian Lifshitz, Director of Sustainability and Public Outreach, Americas, Asia Pulp & Paper Group. “So frankly we are able to get a competitive cost advantages.”
Lifshitz notes APP does source some pulp on the open market, typically based on product type, but for the most part APP has emerged as an internally driven global operation that has been outpacing the investments of its competitors.
“When we look at investments in new machines, and I am not talking about a converting machine, rather a paper-making machine, it has been a number of years since we have seen any investment in the North American market,” says Lifshitz. “When we look at what APP has done alone in the last 10 years we have brought on three giant machines – we are talking about $12 billion of investment.”
In China, APP brought on what is now the world’s largest board machine housed in a building resembling a large airplane hanger to accommodate what amounts to a circular machine measuring around one kilometre in length. “We see our potential on a global scale in terms of investment in technology… and I think that is huge for APP in terms of its future within the industry,” says Lifshitz.
New market realities
Lifshitz explains the investment in three modern paper machines allows APP to evolve product offerings as its printing-industry customers are also evolving, which may include providing coated or uncoated sheets, copy paper, stationery or printable packaging materials.
“APP can look at the growth segments and expand our portfolio. That is a key to our success,” he says. “We have an advantage in machine flexibility because we are able to produce jumbo rolls… we are able to adapt our machine technology with different levels of pulp, different levels of coating, whatever the customers demands on a full run.”
Whereas legacy paper production operations are primarily focused on shipping rolls out for further cutting and converting, APP is able to do single roll production and adjust its machines based on customer demand and this affords significant production savings.
Flexible, full paper production integration combined with sourcing its own pulp from plantations allows APP to turn savings into stable global paper pricing. This is a key advantage particularly over the past few years when printers have seen significant fluctuations in their paper pricing.
APP’s installation of new paper machines over the past decade are also supported equally aggressive investments around becoming a more environmentally progressive operation. “APP Canada sources from Indonesia and China and, through plantation development and sustainable efforts, we have really been able to take a leadership position to provide what the marketplace wants,” says Lifshitz. “We see customers looking for sustainable paper making and environmental credentials and we are able to provide that now... Over the past five years, the commitment on sustainability has really changed our value proposition and we now really have become a definer in terms of zero deforestation.”
The plantation model employed by APP, which allows it to avoid clearing forests, relies on a special fast-growing eucalyptus genus, with other farmed species including poplar and acacia. The APP concessions in China alone represent approximately half of the country’s total pulpwood plantations.
“The challenge for us, because we are truly integrated, is that we have to work with our suppliers and our suppliers’ suppliers to ensure they maintain the same commitments that we do in our supply… to ensure that all of our materials that arrive at our mill are harvested sustainability and follow our policies of zero deforestation,” explains Lifshitz.
Based on years of research and develops, APP’s eucalyptus trees can now be harvested and planted in five-year cycles. This model is driven by APP controlled nurseries, including its primary Hainan location that produces more than 100 million plantlets each year that are then transplanted into APP’s managed plantations – a process that is crucial to APP’s goal of zero deforestation.
“We are an integrated company all of the way from pulp manufacturing to retail and that sets us apart from the rest of the competitors,” says Chin. “Because we are fully integrated, we can go all of the way into the pulp price so we can offer more stable available pricing, which gives us more options.”
Chin explains these options afforded by APP’s full production integration directly relates to the growing number of paper varieties it now supplies to the Canadian printing market. This becomes a vital asset as a coast-to-coast operation, with facilities stretching from Quebec to Vancouver, employing around 75 people.
Chin explains this position is also supported by the fact that APP is solely focused on the paper needs of its customers, as many of its competitors have diversified into selling equipment and industrial supplies. “Selling our paper is what we have been very successful at over the last few years,” says Chin, “and I think for the next few years we will stick with that.”
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