Nine Dragons profits in FY 2019 despite challenges

Nine Dragons Paper Holdings Ltd., Hong Kong, has announced the audited consolidated results for the company and its subsidiaries for the fiscal year ended June 30, 2019. 

According to a news release from Nine Dragons, the company faced various challenges in its 2019 fiscal year, including a complicated economic environment both at home and abroad and tightening control on import quotas for recovered paper by the Chinese government. Despite these challenges, the company reports that its sales and sales volume reached record highs for the year. Total sales volume reached 14.1 million metric tons, representing a year-over-year increase of 8.5 percent. Total sales increased 3.5 percent year over year to about 54.65 billion Chinese renminbi (RMB), or $76.7 billion. 

In response to changes in the macro-environment and policy on the import quota of recovered paper this past year, Nine Dragons aimed to diversify the raw material sources and expand its business downstream to establish a vertical industry chain. On the upstream side, the group has invested in production capacity for recycled pulp in order to gain better control over the stability of raw material supply as well as the quality and cost efficiencies of production, Nine Dragons reports in the news release. The group also expanded its business downstream through the acquisition of packaging businesses and is getting engaged in the production of corrugated cardboard and cartons. The company reports that this expansion should further enhance its operating efficiency, enlarge the business scale and revenue, reduce the operating and financial costs and increase its pricing power. 

Increasing capacity

Regarding production capacity, the group acquired a company in Malaysia with production capacity of about 0.48 million metric tons per year for recycled pulp. Currently, the group’s total designed production capacity for paper and pulp worldwide amounts to 16.37 million metric tons per year, including 15.52 million metric tons of paper capacity and 0.85 million metric tons of pulp capacity. 

Nine Dragons says it plans to start additional production capacity of about 2.05 million metric tons per year for linerboard in China and 0.55 million metric tons per year for linerboard in Malaysia. Details of the latest production commencement plans for Chinese and Malaysian paper manufacturing projects are as follows:

• China Shenyang – 600,000 metric tons per year of linerboard capacity, expected to commence in the fourth quarter of 2019; 
• China Quanzhou – 350,000 metric tons per year of linerboard capacity, expected to commence in the fourth quarter of 2019; 
• China Hebei – 500,000 metric tons per year of linerboard capacity, expected to commence in the first quarter of 2020; 
• China Dongguan – 600,000 metric tons per year of linerboard capacity, expected to commence in the first quarter of 2020; and
• Malaysia – 550,000 metric tons per year of linerboard capacity, expected to commence in 2021.

As import quotas on recovered paper have decreased raw material supply, the amount of domestic recovered paper is not enough to satisfy the entire market demand in China, Nine Dragons reports. The resulting supply gap in recovered paper would bring an impact to the paper manufacturing industry that should not be underestimated. As a result, Nine Dragons has diversified its business by purchasing channels of domestic recovered paper and closely monitored the quality of domestic recovered paper for early preparation. The company reports it has also formulated a detailed plan for the manufacturing of pulp.

“In particular, we expect to increase the production capacity of recycled pulp upstream with a view to gaining a better control over the stability of raw material supply as well as the quality and cost efficiencies of production,” Nine Dragons states in the news release.

As of June 30, the company’s designed production capacity for kraft pulp and recycled pulp was 0.37 million metric tons per year. Nine Dragons has carried out a series of upgrades for its mill in Old Town, Maine. The mill has been producing unbleached softwood kraft pulp since August with capacity of about 0.16 million metric tons per year. The group acquired a company in Malaysia in September with production capacity of 0.48 million metric tons per year of recycled pulp. Currently, the group has a total designed production capacity of 0.85 million metric tons per year for kraft pulp and recycled pulp.

ND Paper

The group also plans to further increase the production capacity of its existing mills in the U.S. for recycled pulp by 0.56 million metric tons per year and kraft pulp by 0.20 million metric tons per year. Details on the latest kraft pulp and recycled pulp manufacturing projects in the U.S. are as follows:

• Biron, Wisconsin – 240,000 metric tons per year of recycled pulp capacity, expected to commence in 2020; 
• Fairmont, West Virginia – 60,000 metric tons per year of recycled pulp capacity, expected to commence in 2020; 
• Fairmont, West Virginia – 60,000 metric tons per year of recycled pulp capacity, expected to commence in 2021;
• Rumford, Maine – 200,000 metric tons per year of recycled pulp capacity, expected to commence in 2020; 
• Rumford, Maine – 80,000 metric tons per year of kraft pulp capacity, expected to commence in 2020; and
• Old Town, Maine – 115,000 metric tons per year of kraft pulp capacity, expected to commence in 2021.

Upon completion of these manufacturing projects, Nine Dragons reports that its total designed capacity for paper production is expected to exceed 18 million metric tons per year and the group’s aggregate design capacity for pulp production is expected to reach 1.61 million metric tons per year by the end of 2021.

The group also has promoted products with good value for money under the River Dragon brand to establish a more diversified product mix. 

“Looking ahead, consolidation of the papermaking industry will be accelerated driven by factors such as environmental protection, raw materials and market conditions, which will offer vast room for the development of large enterprises such as us,” says Nine Dragons Chairlady Cheung Yan. “In order to seize the market opportunities, Nine Dragons Paper has been well-prepared. In the coming year, we will strengthen our efforts in expanding the domestic sourcing channels for recovered paper purchase, and continue to explore opportunities to expand the production capacity of recycled pulp overseas in order to ensure we have sufficient supply of raw materials with good quality. As we continue to satisfy the needs of the mid-to-high-end market, we will also devote greater resources to the research and development, production and sales of mid-to-low-end products with higher value for money so as to further increase our overall market share to continuously reinforce our winning edges as a market leader.”