REstRICTED

FILE COpy Rep 0 r t No. EC - 96a

This report was prepared for ule within the Bank. It may not be published

nor may it be quoted as representing trhe Bank's views. The Bank accepts no

responsibility for the accuracy or completeness of the contents of the report.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

THE PROSPECTS FOR PULP AND PAPER

July 25, 1961

Economic Staff

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Table of Contents

Sununary and conclusions

I. Introduction

II. Demand, supply and trade patterns

Geographic distribution of demand ru1d supply TJ~es and uses of pulp and paper

III. Trends in and outlook for demand

Long-term trends in demand for paper and pulp More recent trends Projecting future demand Prospective demand for paper in 1964-66 Prospective demand for pulp in 1964-66

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IV. PrOSpe(;7ts for supply and trade

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1

3

3 7

10

10 13 14 19 24

26

Historical trends in supply and trade 26 Regional balances and outlook for supplies and trade 30 Reconciliation of world and regional balances as of the

mid-1960 t s 37

(a) North Alnerica 38 (b) Western Europe 39 (c) Other regions 42

Conclusions concerning market growth and trade 43

AppendL~es 45

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~ry and Conclusions

1. Most of the 'toJ'orld l s pr~cluction of pulp is derived from Vlood and goes into the making of pa];er, except for a &mall proportion vlhichis used to make rayon. Paper in turn is produced in a wide variety of forms for use in such diverse fields as 'lfIriting, printil1§;,9 p8.clcagine and construction. Currently the world is consuming nearly 60 million tons of pulp and over 70 million tons of paper per year, of 't'rhich 75-80% takes place in North America and l'lestern Europe, around 10~b in the Soviet Bloc countries, arrllO-15% in other areas. North America and Europe produce some't~rhat more pulp and paper than 'l:,heyc onsume, and "Chese continental surpluses are used to 1113 et the import deficits of the other regiopso At the same time a larger trade flotoJ' in pulp and paper takes place 1n thin each of these two net eA,})orting cont~ nents , vrlth Scandinaviamcating a deficit 1n tho rest of Europe and Canada "mooting an import .deficit ih the 'u.S. l~rtlile less than one-fifth of the 1'Torldt s production of pulp and I)aper enters 1-rorld trade, however, these products, in terms of value, mUst be considered ar.lonc; the leading basic rna terials in international trade aJ:+d are important contri"outors to the totalcol11rtlodity export earnings of Finland (47%), Sv~eden (23~O, Norway (20%), Canada (19%), and Austria (9%) IS

2. In the 42-year period 1913-1954/56 world. demand. for pulp and paper (excluding the Soviet Bloc) gre't.J at an averaGe rate of around 4% per year, and Hi th rare exceptions the rates of CrO'tvth recorded over se"J.ected long-term intei."Vals during "~hat period did not stray far from that averaGe. lVithin this overall trend newsprint demand tended to grmv more slmvly than demand for all other tYl-"'es of paFer and demand for mechanical pulp (most of l1hich is used in newsprint) tended to grO'tV' mor~ slouly than demand for chemical pulp. In the post-World War II period 1947/49-1954/56 the rapid rise in income in most countries resulted in acceleratine the grovIth in cons'l.tYtlption of pulp and paper to a rate 1"1ell above the. long-run average rate. In that period 'toJ'orld (ex Bloc) demand for paper increased at a rate of 6.5% per year and vl0rld deroand for pulp rose at a rate of over 7% 1~r year (the latter rate reflects in part the fact that available pulp data include rayon pulp and demand for rayon in that periOd~l~~ rising faster than tha"li for paper). As w'as '~he case over the long run, (,. ·:Sprint consumption gr~~l more slouly tha.n consumption of all other paper (5~lf~ vs. 6.7% per year) ana demand for mechanical pulp grew more slot-Fly -than that for the che11u.cal variety (6.5% "Vs. 7.6% per year).

3. All the major geographical regions shared in the growlih in demand but rates of growth varied 'Widely from one region to the other, reflecting 'difforeneGs both in ratos of aconotnio ~routh t\hd ill th~ eflt30i n£ overall economic grovrth on demand for paper. The lOvlest rate of gr01Qth recorded through the mid-1950's (excluding the Soviet Bloc) 't-ras in the U.S. (4.6% per year) and the highest in Japan (25% per year), but in most areas (including the large 'Jestern European market) growth rates 'woro c10f1;': to the I07b-per-year mark. In the Soviet Bloc excluding Nainland China growth averaged al TIl ost 11% per year and in ~iainland China it appears to have ave1"age<i over 20% per year. .

\\ " 4. With a slackening of the pace of economic gro'toJ'th in most regions after the nlid-1950 IS, and under the irn.pact of the recession in North A,lerica in 1957/58, the rate of growth in pulp and paper consumption slo1oJ'ed down in all regions but Latin America in ;jhe period between the mid-1950 1 sand 1959,

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the last year for which data are available, although the latter year also sa'VT a sharp upturn in consumption that made up for much of the ground lo~t during the preceding two years.

5. ~.rhe rapid growth of consu.rnption since the close of the war, and particularly the threat of shortages during the Kor~an Uar, greatly stimulated efforts in all regions to achieve a Greater degree of self-sufficiency in pulp and paper, but d~spite these efforts regional import deficits tended to grO't-t in absolute terms, especially in 1Jestern Europe excluding Scandinavia. As a result there 't'las a fairly constant ratio througho'l\t t:h..e postwar period betl-;een gross vl0rld export volume in pulp and paper anc!' the grovn.ng 'tv-orld production (excluding the Soviet Bloc countries), although the ratio of trade to production weakened some't':hat in the case of pulp, perhaps reflectinr; on the one hand a preference by e:KJ.:~rting c:)untries for selline paper rather than pulp, on the other hand the progress made in utilizing hardtv-ood forests in the deficit countries of Europe and in the U.S. for making 'Vl0odpulp. Hean't-rhile, the Soviet Bloc (excluding r:Iainland China, for which trade data are not availa~le) bec~ae a net ~uporter of both PLtlp and paper.

6. Of the two major exporting area.s .,. Canada and Scandinavia ~ the latta!;-- JI probably O't'l'ing to its :p:r.oximi ty to the rapidly expanding '-Jestern European market, benefi tied much more from the rising volume of trade "than the former, 1.]'hich mainly supplies the slow0r grO't.J'ina u.s. market. Both areas increased their exports of pulp and pape;L~ bet'J't~en 1950 and 1959, but 1-11i1e Scandinavia (including Austria) also increased its share of world production and trade in paper, Canada IS shm'e in both declined. Hi th regru. ... d to pulp, 'liOO share of both areas declined somel1hat ,.ti. th respect to both 1vorld produc­tionand trade.

7. Because of the close relationship between economic growth and grov1th in demand for paper lit a .... ::t::: ~",_, ~\J .. ':: •• ~~~jl\.. .'liO PJ'Ioj\Jct ·t:l,J ~;r,:} b::.b:..... * r~t;-t:1 of dO:L't1CL.'1d for paper ani pulp in accordance 1-rith estimates of future GNP groiith that are available in the BruU(. On the basis of the average of a ran~e of expectations of future economic grOtvth in each of the various regions of the 110rld (ex Bloc) through the mid-1960's, world paper consumption over the period 1954/56 and 1964/66 should grol'l at around 5.5% per year, compared to 6/.5 % per year in the preceding period, 19h7/49-1954/56. It, is asstuned tha.t demand for newsprint and other paper, respectively, will share in this gr~vth in approJdmately the sarne proportion as in the previous period, and that consurnp­tion of paper ,grade pulp (i.e., excluding rayon pulp) 'tull grov1 at approximately the same rate [:;r:. paper. If only the lOt-rer estimates in the range of future economic gro'tvth expectations for eaoh region are realized" and if at the same time the ratio between gro1vth in demand for paper and grov7th in GNP in certain regions should be lower than '-las observed in recent years, 1-rorld (ex Bloc) paper consumption micht gro'Vl at a rate of around 4.5f~ per year through the raid-1960's. The asstmlptions underlying the latter estimate of future grov.,'th, hOl-leVer, are deliberately conservative; and the previously noted projected rate of grO'tvth of around 5.5% per year is not considered over­opt:imistic. Both estimates imply a deceleration in the grovrth of paper demand in most regions as compared to the previous postl..]'ar period, associated vr.i. th an expected deceleration in GNP grO't·1th.

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8. The assumptions underlying the projection of a 5.55'; per yea.r rate of gro~~h in world (ex Bloc) demand for paper probably understate somewhat the future rate of grovrth of paper consumption in the less-developed reGions, vThere consumption, in the absence of arti.ficis::.l restraints', 1nCJ.Y . tend to broTtT at a faster pace in rele"C/ion to GFP e;rmvti1 in the future than it did in the past. OHing to the relatively small share of the less developed countries in total 1Torld consumption, hO'tvever, a faster rise in consuraption in such cOluntries than has been assumed would not significantly affect the rate of grovIth in paper const1Illption in the 'toJorld (ex Bloc) as a 'tv-hole.

9. l:1hat are the prospects for matching the probable grm·rth in demand for pulp and paper ~dth the necessa~J supplies? An investigation by FAO in 1959 of world vnde expansion pla.ns in pulp and paper capaci ty through 196.5 made it possible to estimate vlhat the prospective balance may be at that tiJlle betvleen probable planned supply and probable demand. H01'Tever, FAO 'tv-as not able to obtain ~nformation on expansion plans in North .America beyond 1961/62, and the p~'~nned expansion in Japan seemed too modest compared to possible demand. Assuming ti~at (a) Canadian e:h."Pansion will continue through 1965 at least at the same rate 'as that planned for 19.58-62, (b) U.S. domestic production vJill e~~pand sufficiently to keep the U.S. pulp and paper import deficit at a level not greater than that in 1958-59, (c) Japan Hill raise its oxpansion soals for the same reason as cited for the U.S~, m1d (d) Scandinavia will expand its capacity by the additional amounts announced since publication of the FAO survey, it appears that the planned eJ~ansion of pulp and paper production through 196.5 is largely anticipating the level of world (ex Bloc) demand that vlould obtain in the mid-1960's, if demand gravIS at around 5.5% per year, and would only marginally overshoot that level (unless some projects 't-1ere postponed) if demand grows at a rata of only l~ • .5% per year.

10. Despite the prospects that the expansion in production ~-ti.ll be adequate to meet expected demand on a.. vl0rld (ex Bloc) basis, hm-rever, producing capacity is not likely to expand sufficiently in most deficit regions to prevent their pulp and paper import gaps from widening further. This appears to be especially true of \Jestern Europe outside Scandinavia, Asia, excluding Japan, and to a lesser extent, Oceru1ia and Latin America. Future efforts to increase self-sufficiency in these regions (~dth the possible exception of Oceani~,) are likely to be hampered by a lack of indigenous ralV- materials in the t1la~36 of Europe and lack of capital as well as other difficulties in the l01ft§1" incC'~ne regions. In Latin America the overall pulp and paper deficit miBht decrease if demand 1vel"e to groH only at the lOvler of two rates discussed in this study, but the higher rate of grm,rth appears to be a more reasonable assumption for the future. As lfas noted above, it ha.s been assumed that the U.S. (nOt-r a. SUbstantial net importer), and Ja.pan (nOl[ roughly self-sufficient), lv.lll succeed in averting any signific~nt chru1ge in their respective trade balances. However" if average expectations as to future pulp and paper consumption r;ro'trt,11 in Japan a:ro realized, Japan could become a net importer of moderate propo:ctions.. In Aj:'rica the prospects are for a slight reduction in the regional import deficit unless the projected demand for that area turns out to be underestimated.

11. In the Soviet Bloc (excluding Nainland Ohina)" where pulp and par:er consumption in tbepast has lagged behind income grotv-th, planning goals indicate that future expansion in the pulp and paper production sector through

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1965 should exceed the rate of income grm~h during tl1e same period, although not by as great a margin C1,S in many regions, including 1"lestern Europe. It seems reasonable t:o assume that the comparatively faster rate of e:>cpansion in pulp a.ni pape~: production 'Hill serVe primarily to meet demands -vn.thin the Bloc and possibly to elimina;te the Bloc IS grovling import deficit, rather than to develop export markets.

12. In view of the foregoing, pulp and paper producers should enjoy a favorable marketing situation over the next five years and should be al)le to proceed uith their anno~ced expansion programs v7ith a reasonable degree of confidence. HO'trJ'ever, temporaJ.jr checks and setbacks to growth are to be expected from time to time under the influence of the overall economic cycle even though gro1~h is expected to be vigorous on the averace.

13. The above projections imply that pulp and paper prices will not depart significantly from the development of the general price-cost level in such a way as to inhibit the grovlth of demand. In the past five years pulp and paper prices i.;::.( real terms have been relatively stGJ,ble; and there are good prospects that capacity ~lJ'il1 ~pcpan.d to meet prospective demand at present price levels.

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- ]. -I. Introduction

Paper is the principal end-product of wood pulp and is among the most valuable yroducts tJf the forest. Production of paper consumes only around 11-12% of the annual harvest of 'tvood from the l-lorld l s forests, while fuel accounts for around 43-45%, lumber (includil:::g tvood for fUrniture and rail­road ties) about 3~.-35%" pi tprops 3-4% and uses such as poles and rural fencing the remaining 4-87~. OHinG to the value added in processing, hOliever, it is estimat\~d, that paper accounts for around 40% of the value of the annual produc~~ioi1 of intermediate lvood products ranking second in importance only to lumber) (facluding sleepers, veneers and plywood), l'1l'hich accounts for around 45%!t 1/ \1 ,,- \\

Pulp and lDapertogether also constitute a valuable item of vmrld trade. Despite the fac\t that less than 1/5 of the 'tororld's annual production ,of either pulp or '':papel' enter international trade, 1vor1d exports of these pro­ducts in 1956 c,omprtsed about 3.1% of the total export value of world trade, compared luth 4~, 7% for iron and steel exports, 10.4% for fuel exports, and 16.1% for e;}:por~fs of food.2/ Pulp and paper together ra.liik iiori. th such COi111'i'lO··

dities as petroleum, iron and steel, coffee and ra1-J cotton as the leading basic materials in international trade in terms of valuf'J.

This e~~ort trade in pulp and paper refers to gross export trade, ieee includes exports from net importing countries. HOlvever, about, 90% of the trade in woodpulp and 80% in paper originates in the major pulp and paper exporting countr:1'es, which are Canada, Finland, Nor't'Tay, Slveden and, on a sl"aaller scale, Austria. In 1956 and in the more recent, a1 though recessionary, year 1958 the share of pulp and paper in the total eA~ort earnings of each of these countries was (1958 in parentheses): 45.9% (46.5%) for Finland; 27.7% (23.2%) for S'tveden; 20.1~b (19.31b) for Canada; 19.0% (19.,5%) for l'Jorway; and 10'.2% (9.0%) for Austria. The U.S. is the world's largest importer of pulp and paper but it is also a large net exporter of certain tjl-pes of pulp (ille. that used in making rayon) and paper (e.g. cardboard and wrapping paper). The value of these exports 'tr1as close to 2% of total U.S. exports in both 1956 a.l1d 1958.

The interest of the main exporting countries, and of some segments of the industry in the U.S., in the Tjwrld market for pulp and paper and its orderly development is self-evident from the foregoing figures. These pro­ducts, hOl'lever, are also of great interest to the less developed countries. Pulp and paper, like iron and steel, are among the minority of basic materials in vrhich there is a substantial flol-T in international trade from the higher-income areas to the lOHer-income areas (as v1ell as to other high­income areas). Based on rough estimai::,es, in 1958 imports of pulp and paper

Y Estimates by FAO in its annual 7Cearbook of Forest Products Sta-bistics.

y FAO, The Demand for Paper in 197~, Rome, 1960. These FAO estimates are based on f.oQb. e~~ort values and may include the Soviet Bloc countries~ Estimates of the share of pulp and paper in ,·mrld trade, based on FAO data for pulp and paper and INF data for world trade, and excluding the Soviet Bloc countries, v10rked out to 2.9% in 19~6 and 3.0% in 1958 0

'rhese data include pulp for maldng textile fibers.

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accounted for some 2% of total imports into Latin America, 1.7% of total African imports, and 1.4% of Asian imports (excluding Japan and Hainland China).

Pulp and paper are closely related to the process of both economic grm-lth and cultural. development in all countries. Indeed in many countries, both developed and less developed, Ul1due restriction of newsprint imports can become a political issue unless clearly justified by balance of payments problems. While the major producers seek expansion of trade in order to increase their foreign exchange earnings, therefore, the importing areas seek to save foreign exchange by becoming progressively more self-sufficient. It is important, particularly for the Bank, to assess the net effect of these conflicting objectives on the future trend and level of international -trade in pulp and paper because the Bank and IFC have both been engaged in finan­cing pulp and paper, in some cases to increase self-sufficiency, in others to expand e~~orts. The present report analyzes the current position of, and recent trends in, the regional and product pattern of the world pulp and paper industry, the outlook for future Lv-arId demand, through the roid-l960 1s and the relatj/:p bet't-leen prospeotive demand and current plans for the expansion of pulp and paper-making capacityo

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II. Demand, suppll and trade patterns

Geographic distribution of demand and supply

Currently the \'JorldY' is producing and consuming pulp and paper at the annual rate of upwards of 58 million metric tons of pulp and 73 million metric tons of all types of paper. These data are based on performance in 1959 and although preliminar,y are not likely to be revised significantly enough to affect the conclusion that, after a temporary check in gro"t'lth during the recessionar,y year 1958, world pulp and paper consumption and production stag~d an energetic revival in 1959 (rising by 9-10% from the previous year) andvTere once again reflecting the strqpg uPtvard trend that has characterized thcm quring tho first half -of this contur;,r. Co..r:1parc:.ble data for 1960 ;·:ill not be available until latel961 or earLY 1962, but in v~ew of the continued economic gro1·Jth in most areas they will probably show a further rise in demand in 1960, although probably of more moderate proportions. In order to deal with final revised data as much as possible, the follovung outline of the world pulp and paper industr,y is presented as of the year 1958. ~lliile considerable progress has been made since then, the essential structure of both demand and supply has presumably not changed significantly.

As of 1958 world consumption of paper stood at somewhat over 66 million metric tons and consumption of pulp at around 53 million tons. Table 1 shows the regional distribution of this demand. It will be seen that most of the demand for paper originated in Western Europe and North America. These t't·J'Q regions accounted for over three-fourths of total world demand for paper and ~1most 90% of the demand for paper outside the Soviet Bloc countries. Their pre-eminence as ln~)rkets for all types of pulp 't'ras equally great. They accounted for about four-fifths of total world demand and 90% of demand in the world ex Bloc. The Soviet Bloc countries accounted for somewhat over 10% of world consumption of both pulp and paper.

The concentration of demand for paper in VJestern Europe and North America reflects a combination of both high per capita income, which induces a high per capita demand for paper, and a large population. Oceania (Australia and New Zealand) also enjoys a perjicapita income, and a corres­ponding per capita paper consumption, that are\among the highest in the 'trl0rld" but total demand is lirrdted by that region's relatively small population. 1:'Tith regard to pulp, demand is related not to income but to the existence of a paper-mal<::ing industry for which it is the principal ra'trl material (making up, on the average, around three-fourths of the weight of paper)2/o Dissol­ving pulp is a special grade of wood pulp used for making man-made textile fibers, principally rayon, and its demand is determined accordingly. Exclu­ding dissolving pulp, it can be concluded from the distribution of pulp consumption shown in Table 1 that Western Europe, North America, Japan and ~he' Soviet Bloc produce most or all of their ovm paper requirements. '{

-g. VJherever world data do not include the countries of the Soviet sphere, the short-hand expression Itworld ex Bloc" is used for convenience.

g( The rest of the content of paper is made up largely of re-pulped waste paper. In this report all references to pulp exclude was·be paper pulp.

III,

- 4 -Table 1: World 1958 -

Area Papery ~~oodEulp Dissolving y Other fiber 1/ woodpu1p p':llp

H. Europe 16.9 12.6 (0.8) 1.0

U.S. 31.9 21.2 (0.8) 0f)5

Canada 2.2 7.2 (0.1) !v' Latin .America 2.4 0.8 (n.a.) 0.2

Asia ex Japan 1,,2 001 (n.a.) 0.3

Japan 2.9 2.4 (0.3) W Africa .7 0.1 (n.a.) 0.1

Oceania 10 0 00 5 (n.a.) 4/ - -World ex Bloc 21 59.2 45.1 (n. a.) 2.1

USSR ru1d E. Europe 5.4 4~6 (n.a.) 0.1

Mainland China 1.6 08 6 (n.a.) 0.6 - - -1~orld 21 660 2 50.2 (n.a.) 2.8

1/ Includes newsprint, stra1'Jboard and, other paper boards, and fiberboard. 'if Already accounted for under ttwoodpulp". 3/ Consumption assumed equal to production. '41 Le,ss than 50,000 tons. r;; Columns may not add exactly to totals due to effects of rounding.

Source: FAO, Yearbook of Forest Products Statistics.

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This is borne out by the data in Table 2 eJ.VJ.n~ tho distribution of world production of pulp and paper in 1958 by regions, wh~ch also shotv that, as vlas the case with consumption, Western Europe and North America account for most of the world's pulp and paper production. In 1958 these areas accounted for around four-fifths of the world's production of both pulp and paper and almost 90% of production in the Norld ex Bloc. The Soviet Bloc countries, including I·Iainland China, accounted for around 11% of the vJorld 1 s paper and pulp production.

Available data do not permit accurate comparisons bettveen the post1-1ar and prewar situations but they do make it seem fairly certain that up through the 19301s the proportion of world pulp and paper production and consumption that took place outside North Anlerica and Western Europe must have been extremely small, probably not more than 8-9%.Y In the post-~vorld 1'Tar II period the share of Western Europe and North America in world production and consumption of pulp and paper has beeh slipping but only slO'tvly, and the slippage has been due not to failure of grmvth in their min consumption or output but rather to the faster grov~h of both consumption and production in other areas, particularly in J~pan and in the Soviet Bloc countries. Betv1een 1950 and 1958, the share of Western Europe and North America in world pulp and paper production fell from 87-88% to 80%, vlhich represents a decline of less than 1% per year, a:nd their share in world consumption dropped from 85% to 77% for paper and from 87% to 80% for pulp, 'tl1hich also represent declines of around 1% per year. These areas both enjoyed a considerable rise in output and demand in 1959" hov.1ever, so that a comparison based. on that year might show a somewhat slo~ver rate of erosion in their position in the uorld pulp and paper market.

It is clear from the foregoing that for pulp and paper both the produ~~ing industry and the market are highly concentrated, geographically, on two continents - North America and western Europe. As a result the ratio of international trade in pulp and paper to world production is much smaller than is the case vlith most ra1-T materials, although it is not inconsiderable, working out in recent years (1958-59) to about 16% for 'tvoodpulp and 17% for paper.2/ Most of this trade undoubtedly is intra-regional. Indeed that so much of the world1s pulp and paper production enters international trade channels 'is due to the f~ct that the tl'l10 main continental marketing areas are each composed of surplus and deficit areas (See AppendD{ A), resulting in large scale exports from Canada to the U.S. in North America (mostly of news­print) and from the Scandinavian countries to the U.K. and the rest of the continent in Europeo Nevertheless trade in pulp and paper is world wide and the main exporting countries of both Europe and North America ship these

11 On a world ex Bloc basis probable production and consumption outside North America and 1rJestern Europe may have been as 101'1 as 4% in pulp, 6% in paper.

g; Excluding the Soviet Bloc. Due to the incompleteness of ru1d ambiguities in the data concerning the Soviet Bloc countries, and to the fact that their supply and demand are not subject to the same market influences as those of the rest of the vTOrld, much of the analysis hereafter will treat that area separately.

- 6 -Table 2: Horld pulp and paper production, 1958 -- (Million metric tons)

Area Paper ?:.,/ 1tZoodpuJ.p Dissolving y O.ther fiber - W'oodpulp pulp

Scandinavia (incl. Austria)l! 5.3 9.1 (0.7)

Canada 7.4 9.2 (0.3) 41 .-u.s. 27.9 19.~ (0.8) 0135

Japan 3.0 2G3 (0.,3) bY Oceania 0.7 0.5 (!±!) .w W. Europe ex.

Scandinavia 12.6 3,,5 (0.3) 1.0

Latin Jum::rica 10 6 O.l.l. cg;) 0 0 2

Africa 0.3 0.1 (-) 00 1

Asia ex Japan 21 011/6 J (-) 0.3

World ex. Soviet Sphere §/ 59.4 ~5.1 (2~4) 2Q J.

USSR and E. Europe 5.4 4.5 (n.a.) 01

China 1.6 .6 (n.a.) 06 - -Grand Total 66.4 50.3 (n.a.) 2.8

~ Paper and board, including strawboard and fiberboard. 2/ Dissolving pulp is already accounted for under "vJoodpulp". "II For purposes of tIns report II Scandinavian refers to S1-reden, Nort,.;ray, Finland

and Austria. hi Less than 50,000 tons. 'fJJ Because it is a member of OEEC Turkey, for analytical purposes in this

report,is included with Western Europe. £( Columns may not add exactly to totals due to effects of rounding.

Source: FAO, Yearbook of Forest Products Statistics.

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products to all continents, including each other's.l/ Also, while exports to destinations other than the U.S. or Western Europe are quite small compared to total production and trade, they have been grov:ring and have

)provided valuable marginaL support"for the major producers as these e:::panded their production capacity, and especially vThen maj or importing markets have suffered from downswings in the business cycle.

On the basis of available data international trade seems to play only a mar­ginal role in the pulp and paper economy of the Soviet Bloc countries (excluding Mainland China, for ~J1ich no trade data are available). In 19.58 these countries' total pulp and paper imports, although higher than in my previous postwar year, amounted to only around 6% of their production. Exports, which were also at a postvrar high, vJere a slightly lower proportion of production. A discussion of the Soviet Blocls trade position appears in Appendix B. As indicated there the Bloc became a net importer of pulp in 1953 and a net importer of paper in 19.56. In 19.59 its net imports l'1ere 23,000 tons of paper and 36,000 tons of pulp. The Blocrs trade is somewhat more significant, hOl.rever, than the size of the net balance indicates, for, judging from partial data, its gross imports from outside the Bloc area are considerably greater than its net imports, and while its exports to the rest of the "t-Torld are apparentJJr fairly vddely diffused as to destination, its imports from the outside appear to be concentrated to a great extent in Finland, for \1hioh it is an important outlet. In recent years the Soviet Bloc has accounted for over 10% of Finnish exports of both pulp and paper.

Types and uses of pulp and paper

The foregoing discussion has treated pulp and paper as though each Here a homogeneous product. In fact they are not. Each of the terms "pulp" and trpaperrt is a collective name for a family of products, "t'1hich differ among themselves not only in type or quality but also in use. Thus statione~J and nevTspapers are made of two e:ntirely different types of paper vihich, in turn, require different types of pulp in their manufacture. Finally a giiren type of pulp can best be made only from the vTood of certain kinds of' trees and using a specific method of manufacture.

Ver.y briefly, paper may be divided into two broad classes, cultural and industrial. This classification reflects not only differences in use but differences i.n kinds of paper. Cultural paper comprises (a) newsprint, a. more or less homogeneous product "t'lhich is the stock on vThich all newspapers are printed but which is also used in some t3~es of magazines, and (b) printing and "tvri ting paper, 1'1hich is a completely un-homogeneous family of specialized papers. The industriaJ. papers similarly make up a ver.y diversified group of papers l.rith specialized uses as different from one another as paper bags and interior walls. The industrial papers, in fact, may generally be subdivided into two broad categories, packaging and construction.

y For example~ in 1955 around l7~ of both the "t'10odpulp exports (all grades) and the newsprint exports of the main exporting countries and of the U. s. went to regions other than that in which the exporting country was located. Comparable data on exports of other paper products are not readily available.

- 8 -

Based on data for 1958, it may be roughly estimated that for the world ex Bloc almost two-thirds of the paper produced and consumed goes into packaging and construction and the remaining one-third is used for lvriting and printing. Available data are not sufficiently refined to permit an estimate of the division of the industrial papers between packaging and construction. lAli th regard to the cultural papers, slightly more than one­half is newsprint and most of this goes into newspapers. In the Soviet Bloc countries excluding Mainland China, the pattern of paper types and uses is only sl~ightly different from that of the rest of the world. Around 30% of the paper produced appears to be for printing and writing, as against over one-third in the rest of the world, and of that, around 40% is newsprint, as compared to slightly over one-half in the rest of the vJOrld. These and the previous estimates, of course, are only roug~ approximations.

Pulp is divided into t'VJO principal classes: mechanical and chemical (including semi-che~nical), the classifications being indicative of the method by which the fibrous pulp is extracted from the wood or other rat'T material. Mechanical pulp is a largely homogeneous product made mostly from temperate zone soft't-Toods. Its chief use is in making nev1sprint (which is composed almost entirely of mechanical pulp) al though it is blended 't,Ji th chemical pulp in various proportions in making many of the other kinds of paper and paperboard. Chemical pulp is a family of rrlany different grades and types of pulps (including dissolving pulp, which is used chiefly in making rayon) and is the principal ingredient of all papers except newsprint, 1~1ere it is a minor ingredient, and certain kinds of construction paperboards (some of which are composed to a large e:K.tent of re-pulped old waste paper). Conse­quently most of the world's pulp production is of the chemical variety. Assuming that pulp made from materials other than "t-Tood is mainly chemi.cal pulp, about 70% of the pulp made and consumed both in+ihe 'VTorld. ex Bloc, and in the Soviet Bloc countries, is of the chemical type.

FrOIn the producers' point of view the product differentiation that exists in pulp and paper is different from the differentiation that applies to, sav, agrictlltural products such as upland cotton, which also comprises various grades and types. While in the case of the latter the amount of each type and grade produced is in large part a matter of chance,in pulp and paper it depends on a deliberate choice by the producer. Also, differentiated pulp and paper products do not enjoy the short-term market-clearing faCilities, available to most agricultural raw materials, of a more or less truly fluctuating vlorld market price with recognized variable discounts and premiums vinich eCJ!.lilibrat.e supply and demand in the various grades of the basic commodity. Consequently a mill whose production is oriented primarily toward one type of pulp or paper can suffer heavily in the short run even though the indust~J as a whole is prospering. This, however, is primarily a short-term problem for the individual producing firm rather than for the industry as a whole. Over periods of several years or more the markets for most, paper products are influenced by much the same or interrelated factors and tend to move in 1rnison. \Vhile demand for some tYlJes of pulp and paper may lag behind demand for others, permanent changes in the product mix tlemanded successively by the industries that convert v100d into pulp, pulp into paper, and paper into

,end products, ordinarily do not occur so swiftly or so drastically that the

- 9 -

industry as a whole cannot adjust to them smoothly. Even for the individual firm it is possible in man.y, if not all, cases to adjust production, after a time, to changing trends in product demand, sometilnes by no more than adjusting machinery in place, sometiii10S by installing additional equipment or modifying eY..isting facilities. For purposes of analyzing broad industry and regional developments, therefore, which is the primary goal of this paper, it is possible to deal vuth pulp and paper in the collective sense. At the same time it should be recognized that in a short-term situation individual fil~as or possibly even sectors of the pulp and paper industr.y mieht be operating under conditions different from those applying to the industry as a whole.

- 10 -

III. Trends in and outlook for demand

Long-term trends in demand for paper and pulp

Table 3, Dia.grtlt.i1 A and Charts A and B, which follow this page" shOt1" the long-term trends in den~d for pulp and paper during the first half of this century. These exhibits shou that during most of that time demand for pulp and paper rose at comparatively high nnd steady rates of grotvth. It will be seen that during the 42 years betl1een 1913 and 19.54-.56 world ex Bloc con­sumption of ,fill types 'Jf paper grew frolil around 11 million metric tons to 54 million metric tons, which Horks out to an avera.ge compound rate of grO't·rth of 3.9% per year .1/ If 'tve measure gro't·rth during lonG-tarm intervals within the overall period, taking as terminal periods years when demand for paper products was good" it 'tvill be noted that grovrth in pa}:er consumption during successive periods var;fing in length bet't-veen 7 and 14 years displays a mild cyclical rhythm" alternating betvleen periods of fast grolJth and periods of slovler gro"frlth, relative to the long-term trend of 3.9% (sGe Chart A). The slackening of the rate of growth bet'tveen 1936-38 and 1947-h9 appears to reflect in part the restrictions on ne'tV'sprint consumption in Europe in the early post"frlar years. If grmrth over longer periods is examined by joining toge't,her t'tiO or more of the shorter periods sho"frm in Table 3, the regular cyclical Pattern disappears and the variation from the rate of growth over the entire period (3.97b per year) is remarkably small, the rates of gro1-rth in question rnnging from 3.6% per year in 1913-1936/38 to h.41b in 1922/24-1954/56.

It may be of interest also to note the separate long-term growth patterns in t~ro major segments of paper demand for which statistics are available, namely, newsprint and all other paper combined (hereafter referred to as "other paper"). It will be noted that for selected periods of 7 to 14 years in length, each of these segments also displayed a cyclical tendency in growth rates, although these cycles are not as regular as those for paper as a whole. In addition, as indicated by Diagram A, the rates of growth for longer term periods of 18 to 32 years diverged from the 4.2-year rate of growth much more in the case of newsprint and other paper separately than for paper as a whole. For newsprint the range was 2.5% per year to 3.6% per year against the 42-year average of 3.1%; for other paper the range was 3.5% per year to 4.8% per year against the 42-year annual average of 4.1%. It will also be noted from these data that in most periods, particularly in the more recent ones, other paper grew at faster rates than newsprint.

Y The terminal period 1954-56 1'Tas chosen as a basis for most of the dis­cussion because the projections of future demand are made starting from ~hat base. ~hus it 1dll be easier to compare projected rates of grO't,rth ~n demand w~th past rates. Treating the Soviet Bloc and the rest of the ~'Tor1d separately also uill make the projections of future demand more easily comparable to available long-term historical data, as 1'Te11 as avoid introducing statistical uncertainties.

..

- 11 -

TRb1e 3~ World. pulp and paper co~nption, selected ~riods Tex Soviet Bloc J

(1000 metric tons, annual average)

1913Y 1922-2!J:/ 1936-38Y 1947-49 1954-.56

Chemical 't'Toodpulp 4,289 .5,381 ll,893 16,643 27,788 l1echanical vl00dpulp 3 , 720 4,477

Total 8,009 9,858 7~70.5

19,598 9,0.56

25,699 142°.50 41,838

Pulp other 'bhan of wood Y 1,470 1,988

Ne'tiTsprint 2,887 4,025 6,808 7,166 10,.5.59 Other paper 8~O77 9;620 18~.560 27 ,L~91 43;404

Total 10,964 13,645 25,368 34,657 53,9b3

Y Uorld consumption .:lssumod equ.:~l to :production in .Eu:l;opo ~l1d ~·:or"ch i~.mi3ric=:t. Thorstein Streyffert in his Horld timber, trends and prospects" Stockholm, 1958, estimates production in Africa, Asia and Oceania before vTorld Uar II as follows (1000 MT):

1~oodpu1p Paper and board

1913 -76

630

192.5/27

·487 1,,200

1937

. 897 1,,700

Inclusion of these data in the figl.lt'es shown in the table for the nearest appropriate periods lvould not materially affect the grm'Jth rates or the analysis. The 42-year grovJth rate for Fu1p uou1d become 309% per year, compared l'Ti th 4cO% derived from the data shown in Table 3, and the 42-year gro't.Jth rate for paper l'Tou1d become 3.7% per year, compared In. th 3.9% per year based on the data given in Table 3.

?J World ex Bloc consumption assuri1ed equal to production.

Sources: Based on production and trade data contained in:

FAO, European Timber Statistics 1913-1950, Geneva, 1953 FAO, ~'lorld Forest Products statis·tics 1946-1955, Rome, 1957.

•

DIAGRAM A

RATES OF GROWTH OF WORLD (EX. SOVIET BLOC) PAPER CONSUMPTION IN SELECTED PERIODS, 1913 - 1954/56 (PERCENT PER YEAR)

..... E-----AVERAGES -------: ... ~

1913 1922-24 1936-38 1947-49 1954-56

TOTAL PAPER

NEWSPRINT

OTHER PAPER

TOTAL WOODPULP

CHEMICAL WOODPULP

MECHANICAL WOODPULP

PULP OTHER THAN WOOD PULP

2.2% , I 3.6%

3.4% -~ I .. 3.6%

1.8% ~I 3.5%

2.1% .. -

2.3°/~

1.9 % ... ..

4.5% ~

... ~

3.9%

3.8% .. .. ..,.

3.1%

4.8% .. .. ... ,.

4.1%

5.1% :>

4.0 %

5.8 % >

4.5 %

4.0% .. 3.2.%

2.9% ~

6.5% ~

4.3% ... ... 4.4% .. .,.

.. .,.

0.5% ~

5.7% :-

2.5% ... -, 3.1% .. ..

... --,

3.6% :> 6.7 %

>

4.8 % ",

4.8 % ... .... ...

2.5% .. I 7.2% ... 4.3%

.... ... 4.6% ...

".

:::-

3.1% .. I 7.6% .... >'

4.8 % .... ..

5.3% .. '" .. ...

1.5 % .. I 6.5 %

:> 3.4 % ... ..

3.6% ...

.. -",.

IBRD ~ E:conomlc Stoff 1871

..

CHART A

---G-R-O-W·-T-H-T-R-E-N-OS-IN-W-O-RL-O-(E-X-. S-O--v-,E-r-----l

BLOC) CONSUMPTION OF PAPER IN _ SELECTED PERIODS, 1913 -1954/56 (MILLIONS OF METRIC TONS)

IOO~------~----------~--------~----~IOO

80 80

601---------I-------------!----·----------,---·, 60

50~------~-----------4---------~·----~50

40 - 40 TOTAL PAPER

30~-----~-----------4----~~~~--~30

20~-------~------~---4~~----~----~20

.~ PAPER (EX. NEWSPRINT)

10~------~~----------~--------r--

8~------~-----------4---------~~·--~

6~------~------~~-4--------_4--·--~

5~------~--~~ 5

4~-----~--------~-----+----- 4

3~==-----~-------~-4--------1---- 3

2~------~---------4----------r---~2

1~-------~----------4,-------~----~1 1913 1922-24 1936-38 1947-49 1954-5&

.... C;E-------AVERAGES ---------" .........

IBRD ~ Economic Stoff 1870

!l .

CHART B

GROWTH TRENDS IN WORLD (EX. SOVIET BLOC) CONSUMPTION OF PULP AND IN PRODUCTION OF RAYON IN SELECTED PERIODS, 1913 - 1954/56

(MILLIONS OF METRIC TONS) (BILLIONS OF LBS.) 1o0r---------.---------..-------r------, 10.0

80 8.0

60t--------+---------I---·----t-----l6.0

50 RAYON PRODUCTION (Incl. Soviet Bloc) 5.0 (RIGKT SCALE ~)

40 4.0

(RIGHT SCALE --..)

30t--------t---------t-- -----,... ....... "'~---I 3.0

20t---------+------------m~~~---t-~-~2.0

10

8

6

5

4

3

2

I

TOTAL WOODPULP (~ LEFT SCALE)

I I

I

I I

I I

I

1.0

.8

.6

.5

.4

.3

.2

.1 1913 1922-24 1936-38 1947-49 1954-56 .. AVERAGES >

18RD - Economic stoff 1872

- 12 -

The rates of growth in demand for paper, however, become more meaningful 'tvhen observed in relation to the pace of overall wl0rld. economic gro11th. For -this purpose the U.N. index of 'toJ'orld manufacturing was taken as a substitute for an indicator of 1'101"10. economic grO'tvth vTmch is not available (recognizing, hot-rever, that the former undoubtedly overstates the rate of overall economic gro'tvth). The result of the comparis~)!i uas as follows:

Periods 1913-1922/24 1922/24-1936/38 1936/38-1947/49 1947/49-1954/56

Average Annual increase in l1ol"ld manu-fact;uring 0.9% 2.8% 2.9% 6.4%

Average Annual increase in vror1d ex Bloc paper consump-tion 2.2% 4.5% 2.9% 6.5%

For the 42-year period the average rate of growth in manufacturing v1as 2.9% per year, compared vJith 3.9% per year in paper demand. It 'trill thus be seen, 'tv-hen allo'tvance is made for overall eC'Jnomic grOlvth, that growth in paper demand in fact toJ'as most rapid in the first period shown (1-Jhen it grelv 2.4 times as fast as world manufacturing), vleakened to 1.6 times the rate of grot-7th in manufacturing in the second period, and settled clo't-m to about the same rate of gr01-rth as that uhich to'Jk place in manufacturing in each of the last two periods. No doubt the precise num~rical results in these comparisons could be changed by choosing other base years, and in aWJ case may not be entirely comparable from period to period since there is no certainty that -1:;he ratio betvJeen overall economic gro'tvth and growth in world manufacturing remained constant throughout the entire 42-year IJeriod, but the results shov.m above probably would not be materially affected if allol-rances could be made for such imperfections. In e. sense paper behaved much like a "maturing" industr-y during the 42-year 'period, starting 'tvi th a very fast relative rate of grouth :::1_d' slowing' dC't-n: a\s it n r.g.:Jdtl •

This does not mean, h01'1eVel", that in it'!:c,ure years the ratio bet1'reen gro'Vrth in paper demand and vT01'ld incOt,10 gro't,rth must necessarily decline at the same rate as in the past Or even decline at all. It is note't-Jorthy" for example,' that the ratio has remained stable since the late 1930 1 s. In addi tion" under modern conditions the II age" of an industtJr cannot be judged merely in terms of passage of time but rather must be considered in the light of economic, social and technological change. Obviously pulp and paper could hardly be called nevI products as of 1913 in terms purely of the number of years in v7hich both products had been knO't'm and produced prior to that. vn1at made paper a new prpduct no doubt was the rapid development of both new uses and markets (including those arising from social changes such as the rise of public schools and literacy) and improvements in production techniques and processes" which made it possible 011 the one hand to meet the demand from the new usesJ and on the other hand perhaps to create new uses. Similar

! 1 I

(/

- 13 -

developments in the future can, in a sense, restore or maintain the "youth" of the industry.y

If these are correct assumptions, then in c0nsidering future demand for paper the long-term trends can be used as benchmarks but shotlld not simply be extrapolated into the future. Before analyzi ng future prospects, however, the disct~sion of past trends should be completed by a look at the trends in pulp. These are indicated on Diagram A (follovnng page ll) and on Chart B, on the following page.

It ,·Jill be noted from Chart B that the rapidity of groHth in pulp con­sumption va:i."ied 't-Tith a rhytlun similar to that of paper, kvhich is only to be e:h.'"Pected since paper-making is the principal end-use of pulp. It 'trill also be noted from Diagram .A, however, that vTOodpulp growth in 1924/26-1936/38 and in 1947/49-1954/56 was faster than that of paper demand and that chemical pulp gro1tlth in most periods t~as faster than that of mechanical. The cause of the latter rnay be attributed to the fact that most of the demand for mechanical pulp is for making nev7sprint, consumption of 't·Jhich has grO't'm less rapidly in most periods than consumption of other paper. Another reason for the faster grovrth of chemical pulp - and this also helps to explain 't,rhy total 't'J'oodpulp demand gre'tv faster than paper - is the fact that the data in Table 3 include dissolving pulp for rayon and acetate fiber. The grovlth trend of this sector of the industry and its relationship to the gro'trJth of 'tvoodpulp relative to the gro't'rth in paper is seen from the rayon grovJth curve in Chart C. Growth in rayon and acetate production in 1913-1922/24, not sh01'Jn on the Chart, 'toJ'as also ve~J rapid (16.3% per year) but so small in volume (production in 1922/24 had reached an average of only 49,,000 tons per year) that it could not materially affect the pulp-paper ratio. It should also be mentioned that the ratio of pulp conswned per unit of paper produced varies over time in conjunction both with paper-making processes and changes in the product mix of total paper production but tne available data are not sufficient to determine 't'lhat the trends have been.

Hore recent trends

As already indicated by Diap;ram A, in the postwar period pulp and paper consumption experienced a new burst of gro,vth. Between 1947-L~9 and 1954-56, paper consumption in the world ex Bloc grev1 at an average rate of 6.5% per year. vloodpulp consumption gretrl even faster, registering an average annual

1/ Actually, in terms of time the modern pulp and paper industr.{ is younger - than the modern steel industI"'J and net much older 'l:,han the automobile in-dustry. While the Chinese 1'-Tere mal-::ing paper as early as 105 A.D. (as distinct from using papyrus, lvhich was known to the ancient Egyptians) and the Europeans by 1150, the basic elements of the modern industr;! liere . developed much later: the Foudrinier paper-making machine around 1800" commerc~al mechanical woodlJUlp around 1867, and commercial chemical pulp around 1880 (soda process) and 1884 (sulfite process). (Before the 1880 10

the principal raw material used in Europe and the U.S. was raes, although the Chinese had used wood from mulberry trees). The completion of the technological basis of the modern pulp and paper industry therefore dates back only to the 18GOIS.

..

-- 14 -

E::J.in ')~' 7.2;; p\.:r :rc~r. The lC::iJtoI'" liovrever, ~·r.:lS probably due not so much to a:rr;! gQlle:ral increase in the ;t?ulp cont~nt of paper as to the fact" already neted, that the pulp data include dissolving pulp for rayon and acetate fiber, production of which continued to grow faster than paper during the period. It is also interesting to note that use of pulp made from materials other than wood grew more slowly than use of woodpulp.

During the same period (1947-49 to 1954-56) Soviet Bloc consumption, excluding I~Iainland China, increased at an average rate of 10.8%. Due to lack of tr€lde data no good estimate can be made of consumption in I1ainland China. Ho!Vever, reported production data show an average increase of about 27% per year in that country during the period and consumption may have grO'tID at roughly the same rate.

As already suggested" hm~ever, growth in paper consumption, except possibd-Y in countries with centrally controlled economies, is related to grow'i:~1:l-:in income, and the postwar grO'tvth i11 paper demand through the mid-1950 I S largely reflects the ra.p~.d and sustained economic growth that took nlace in all regions between the end of World War II and the mid-1950's. Since the latter period the pace of income growth has sloloJed down in most areas and with it the pace of paper consumption. Between 1954-56 and 1957-59, demand for paper in the world ex Bloc has grown at. an average of around 4.2% per year. It is interesting to note that this shift extends the historical cyclical pattern of grot-7th shown on Chart A, although it is not intended to imply at this point that future grO'tvth w'ill be similar to the rate of growth during this period, which is quite short and includes a recession in North America.

Projecting future demand.

It has already been shown that the demand for paper originates mainly from three sectors of economic activity - packaging, printing and v~iting, and constl~ction. These activities have many and far-reaching ramifications into both the economic and cultural lives of a countr,y and as a group have roots in both the creation of national product or income (e.g. the packaging of goods and advertising) and the fruits thereof (e.g. the opportunities for cultural activity such as reading). Consequellt,ly, as numerous studies 'have established, both the level and rate of growth of paper consuraption are strongly influenced by the level of, and rate of grO't-rth in, national income or product. Chart C on the following page illustrates the general tendency for the level or demand for paper per capita to be related to the level of per capita gross natiorml product.

While a fundamental relationship e:dsts petvleen these variables, hOloJever, it is not precisely the same 1.n every country or region. In each area the intensity and propensity of paper consumption in its three main sectors may be additionally influenced in greater Or less degree by such factors as local customs, the distribution of incoroo~ literacy and reading habits, advertising ~ practices, availability of domestic supplies of paper and local price policies,

en C). ~

<t r-0: <t (.)

a:: lLJ CL.

z 0

~ ~ ::l (/) Z 0 (.)

a:: lLJ CL. <t CL.

300.0

200.0

100.0

80.0

60.0

40.0

20.0

10.0

8.0

6.0

4.0

2.0

1.0

.8

.6

. 4

RELATI,ONSHIP BETWEEN PAPER CONSUMPTION PER CAPITA AND GROSS NATIONAL PRODUCT PER CAPITA, 1956 -1958

CHART C

United States.

Jconodo • Sweden

I NOrWaY • .r.united Kingdom I _.Swit~er~

Finlands' ~Australra New Zealand

Netherlands •• Denmark Fed. Rep. of Germany

Fra~ce. -Belgium Iceland.

I -Austria

!relonde I Japan.

Hong Kong. • Argemi;1(l .

U~ion of S. Africa4 !.Ital~ .I~r"el Uruguay -Venezuela.

eMexico I Taiwan. Brazil,;e ,Greece

Spain costa Rica Portugal. .Lebanon

Colombia. '.Cuba

Peru_

panama"Mtaya

- .EI Salvador J

Fed. of Rhodesia and Nyasaland. United Arab Rep .•

"Dominican Republic Philippines

(Egypt) Tunisia.. .Turkey

Jorocco •• lraq Ecuador

Viet Nam,So .•

dylon. I Kenya. • • Guatemala

Thailand. ' KoreotSo.

I I Cambodia. • United Arab Rep.

I (Syria)

Burmo_ _Indoneslo! - -I~dio. - -I Paraguoy- -Ghclno

Pakiston_ I_Iron - Haiti-

Sudon4. J

_Belgian Congo I .. Nigeria· -

4~Liberio

.2 10 20

TonQonyika _Uganda -40 60 80100 2()0 400 600 1000 2000 3000

GROSS NATIONAL PRODUCT PER CAPITA (DOLLARS)

IBRD- Economic Stoff 1873

- 15 -

and the rate of change in all of these. The effects of these additional considerations may be deduced from Chart C where a v,ride range of pe.r capita consmnption often is appa

7rent mnong cOUl1trics enjoying approximately the same

per capita level of GNP.!

Because there is a fUndamental relationship between consumption of paper and GNP, however, and since t~~ latter can be projected forward more reliably than, and independently of, a measure of anyone sector of the economy, such as paper, GNP (or m.tional income) is connnonly used as a basig for projecting future demand for paper. The two statistical approaches most commonly used in arriving at a numerical rela.tionship between paper consumption and national product or income (for purposes of projection) are (a) the cross-section analysis, in which per capita consumption of paper is related to per capita income in a large number of countries in a given period (as illustrated in Chart C), and (b) time series analysis', in which a relationship is establish~d between the rates of change in the two variables over longer periods of time. The time series analysis approach was selected for the purposes of the present report, partly because it tends to reflect more faithfully the dyna~c factors which influence paper consumption, partly because it is better suited for examining consumption by geographic regions, which is the objective of this report.

Proceeding on this principle, coefficients of income elasticity of demand for paper ltTere worked out for six out of eight geographical regions (exclusive of the Soviet Bloc countries) by relating for each region total paper consump­tion and aggregate gross national product at constant prices. No correlation was possible for Africa, because of the absence of ~y index of economic growth for that region. For Asia ex Japan paper consumption had to be related to industrial production as a substitute, ho-v.rever poor, for GI'no; because the latter indicator is not available for the region as a i'Thole.

The computed coefficients denoting the income elasticities of demand for paper, along 1vith some statistical measures of their reliability, appear in Appendix C. The coefficients of elasticity chosen for purposes of projecting future demand for paper are shot·m in Table 4 (ro~ed 01'£ to one decimal place). In some cases alternative elasticities we~e also used and these 1i.Lll be discussed belou. . . '

!I It is interesting to note also that the degree of dispersion seems to be greater among lower income countries than among the higher income countries. This indicates a tendency toward a more stable a.nd uniform relationship of paper constmlption to national product or income on a regional basis as both paper consumption anq income rise. One possible reason for this may be that the higher income countries may be more nearly alike, economically and culturally, than lower income countries are.

u.s. Canada

Table 4:

l-Jestern Europe Latin America Oceania Japan Asia ex Japan Africa

- 16 -

Income elasticities of demand for paEer in selected regions y ,I ,

1.1 1.0 1.7 1.7 1.8 2.0 0.9 Y n.a.

!I All conlputations were made by the Statistical Division. Data used were on .sm aggregate basis rather than on a per capita basis. No computations were made for the Soviet Bloc countries because of lack of data. In addition the projection techniques used here are probably inapplicable in analyzing centrally planned economies. Demand in the Soviet Bloc area is commented upon in Appendix B.

y Bec~lse of its method of derivation, using industrial production instead of GNP, this figure is not directly comparable vJith the others. Assuming,

" hOvJever, that GNP grO't-Ith in Asia e~~ Japan in recent years bore about the same relationship to grm~h in industrial production as was the case in Japal;l, the income elasticity coefficient for Asia ex Japan vJould be roughly 1.4.

The elasticities were computed on the basis of linear correlations based on time series and using logaritlunic equations, except for Asia ex Japan Hhere semi-logcari thmic equations were used. The variables used, as already indi­cated, ''tr-1E3re total paper consumption and gross national product at constant prices, except for Asia ex Japan where industrial production itv-as used as the independent variable. The elasticity coefficients ShOlin in Table 4 are those which aPJgeared to represent the most stable relationships bet't-reen pa:r:er and income O1iTer the longest number of postit-1ar year's ending it-rith the mo?t recent

. year (l9~~8) for ~vhich data l·roro .3,vaila'Glc nt tho time .8f COjJ1pu-cc.tion. S:Lnc0~ as l~ll be seen, the base from which the projections of paper demand are to be made is 1954-56, the latter feature has the advantage of reflecting in the elasticities conditions of demand during the early part of the projection period.

A$ indicated by Chart C the elastj,city for each region might be expected to rank :in magnitude in inverse proportion to the level o£ per capita GNP that preYails among the countries of that region. If that 'tlTere the case the elasticity of demand for the U.S. vJ'ould be lmv-er than that for Canada, that for Oceania would be lower than Europe's, Japan's would be lower than Latin

\\ - 17 -1;\

Amer~(~,ats, and the elasticity for Asia ex JapardlvJould be higher than that of all the other regions save perhaps Africa. As already noted, h01J'ever, the failure of the regional c0efficients to form such an ideal pattern is attributable to the irifluence of factors other than GNP or income levels.

By their very nature coefficients of demand elasticity cem only reflect relationships among two or more quanti tative variables in some historical period. In using such coefficients for purposes of projecting future demand for paper it is necessary to consider whether the past relationships might be upset in the future. Not all the forces that influence the relatioships between GNP and paper COl1..sumption, hO'V1ever, are known or, if kno'tm, quanti­fiable. This raises problems which have/no precise solutions and may be discussed only in general terms. Consiq~'ring someo£ the factors that might influGnce the future ratio of gr ~Jth .in paper consumption to grovrth~ in GNP, however, such as (a) possible changes in local habits anS. conditions of denland (comprising the various influences already mentioned on('l. ... age 14) and, (b) changGs in technology and/or the real price of pulp and paper ,which might e:A.rpose paper to substitution by other materials, there do not >seem to be any developments in the offing that shotlld greatly alter those relationships over the neJ~t five years (which 1-1()uld complete the time interval for projections undertru{en in this report).

Assuming that per capita GNP or income: COl:t:tnucs to grpt.J' throughout the world in the future, the foregoing is almost surely a conservative assump­tion with respect to the elasticity of demand for paper in most of the less developed regions shovm in Table 4. The real price levels of pulp and paper are not likely to change so radically over the next 5 years as to have a significant effect on demand for paper or on paper1s competitive position vis­a-vis other materials (see App~ndix D). Secondly, most technological develop­ments that might retard growth in paper demand (irrespective of price) are not likely to be relevant to the situation in low income countries. For example, the substitution in recent years of plastic film for paper for purposes of covering dry-cleaned clothes in the US simply is not meaningful in tel~ns of prospective paper consumption in most other countries of the 'Vlorld. Lastly, any changes, not nOvJ foreseen, in the first group of factors mentioned above (local customs and condi·ciol1s of demand) are more likely to impart an upuard than a downvrard tendency to the elasticity coefficients in most of the less developed regions. As the average level of per capita income and literacy continues, to rise in these countries, it is difficult· to see hO'toJ paper consumption would grow any les~ favorably in relation to income in the future than it did in the recent pastJ except i.f deliberate government action 1'1e1"e taken to restrict consumption. Even in the latter event, 't'J'hich might take the form of, say, quantitative restrictions on paper imports as part of an effort to solve a balance of payments problemJ a~ set-back in paper consumption grolvth viTOuld probably be temporary.

~ See footnote 1 of Table 4.

•

- 18 -

In most of the higher income regions it is much more difficult to assess the likely dir·ection of changes in paper consumption habits and technological change (irrespective of price), and their effect on the relationship between growth in paper demand and growth in income. In view of the high per capita consumption levels already reached (especially in North America), and the vigorous showing made by ne~J' materials in acquiring and expanding footholds in markets previously held exclusively by more traditional materials, the temptation is great to assume that a relatively "traditionalU material such as paper will in the future yield ground to the newer materials, and that its growth will begin to lag behind overall GNP or income growth. However, even in the U.S., where it is most vulnerable to new materials, the paper economy has appeared so far to have successfully weathered the threat of displacement by other materials, such as plastics, in its industrial use sector (chiefly packaging), and by the grol'rth of television in the cultural use sector (books, newspapers and other media in the publishing and advertising fields). (Any displacement that m~ have taken place through 1958 is, of course, already reflected in the demand elasticity shown in Table 4.) At the same time, in other relatively high-income countries, there are developments favorable to the future of paper which have only recently begun to affect its consumption. The most prominent example of this is the shift to self-service supermarkets in Europe, which should tend to accelerate consumption of paper in packaging.

vlhat the future holds in the US is difficult to foresee but it is si gnificant that the industry seems deter::tined at least to maintain its position in the competition to exp and the markets for paper through tech-110lo~ical ill.l10vation. According to an estima.te by the Ainerical1 Pulp and Paper Association the industry in the U.S. spent about :::;65 million 011

research and developm:Jnt in 1960 and expects to raise these outlays to !:)100 million per year by 1970. In the drive to maintain established markets the U.S. industry has often been able to combine paper 'tU th competing materials, such as plastic film, aluminum foil, and synthetic resins, to arrive at new' combination products superior to either of their components. Presently it is attempting to create a 11e1"; market by developing "paper textiles" for use as disposable industrial clothing.

It seems a reasonable assumption that on the 'toJ'hole, and given a reasonable degree of price stability, the relationships between paper consmnp­tion grmrthand income gro't'rth 'tvhich 't-J'ere observed during the postwar period are not likely to change significantly over the ne~ct five years. For reasono other than those discussed in the foregOing paragraphs, however, it is necessary to recognize the possibility that 10'ttJ'e.r elasticities than those shown in Table 4 might conceivably assert theli1selves during the projection period in the case of three areas: Latin Alnerica, Oceania and Japan. In the first t1IJ'O areas the uncertaintJi- ar'ises O'Ll.t of difficulties in interpretingi:!.: the past relationship betv.reen paper consumption and income growth. For Latin America and Australia (which accountb for about 80% of the combined gross na­tional product for Oceania), the relationship bet'l'Teen paper consumption and gross national product has been rather erratic since the end of the 't'rar. The most pron01.mced shift in the paper-income relationship over time see~ to have occurred around 1950 in the case of Latin Anlerica and in 1953 in the case of Australia, and the elasticities chosen for these areas for the principal line of analysis in this s'bucJy are based on X'elationships that prevailed beginning

-19-

with those years. On the other hand correlations covering the entire postwar period, while yielding much lower coefficients of demand elasticity were found to have almost as high a degree of statistical reliability over the period covered as those based on the shorter, more recent period. Wl1..ile the choice of elasticities for purposes of the main line of analysis in this study' fell to those based on the most recent period, it was felt that the elasticities based on the longer periods, which worlced out at 1.3 for Latin Ai11erica and 1.5 for Oceania,~ might usefully serve as an alternative basis for projecting demand.

An alternative "minimum" elasticity of 1.4 (compared to 2.0 shown in a preceding paragraph) was also adopted for Japan. This a.lternative ratio is based on an adjusted elasticity coefficient used by FAO in its 1959 stuqy on paper.2/ FAD apparently felt that a higher elasticity based on postwar relationships -through 1955 for Japan simply seemed too high to be sustained. Consequently a coefficient of elasticity ,",vas selected (equivalent to 1.4) which seemed to be more in keeping wIth Japan's per capita income level. 1{hile, as indicated in AppendL~ C, the coefficient arrived at by time series analysis has ver,y good credentials from the point of view of its statistical validity, it was felt that adoption of the FAO estimate as an a1t(~rnati.ve possibility,·muld help shed light on the future supply-demand position in Japan which is discussed in the next chapter.

Prospective demand for paper in 1964-66

For purposes of projecting the estimated levels of paper demand as of the mid-1960's, the elasticities dis cussed in the preceding secti on 1;';81"'e applied to projected rates of regional income growth for the period 1955-65, l'Thich are shovm on Table 5. Nost of the estimates in Table 5 have aP1Jeared in various Bank studies. The estimate for Asia ex Japan relates to industrial production and represents an extrapolation of the average of the rates of growth recorded in that variable for the periods 1953-58 and 1953-59. The estimate for Latin America is based on the lower of two assumed future rates of growth used in a recent study by ECLA.3/ Applying the elasticities discussed in the preceding section to the projections sh01,m in Table 5 results in the projected rates of grmvth for paper consumption in the mid-1960 r s which are sho'tID in Table 6.

Table 6 shows two alternative projections. Those based on "average exp3ctationsll are the basic projections for purposes of this report, using the elasticities indicated in Table 4 and the average of the ranges of assumed GNP grolvth as shown in Table 5. In the case of Africa, for vJhich no

1/ Based on Australia only. y World Demand for Paper to 1975. The coefficient 1.4 wa;~ arrived at simply

by tal{ing the ratio between FAG. s projected rate of growbh for paper in Japan for the period 1955-6,5 and the corresponding assume:d rate of grovrth in GNP.

J/ Economic Commission for Latin America, The Latin ArneriCai;~ Common Harket, 1959.£

•

- 20 -

Table 5: Assumed rates of growth in Gl\relI by region! 1955-1965 (Percent per year)

Region Range Average

U.S. 3.1 - 3.8 3.5 Canada 3.6 - 4.5 4.1 vlestern Europe 3.3 - 3.9 3.6 latin America 4.5 4.5 Asia, ex Japan 10 - 12 1/ 11.0 1/ Japan 6.5 if 6.5 Y Africa n.a. n.a.

1/ Industrial production in the case of Asia ex Japan. g( Later information indicates that Japan now hopes to achieve an average

rate of grow'th in GPP of around 7>~ per y~ar. Since the basic computations of this report were already completed, however, and since use of the higher estimate l-Jould not materially affect the conclusions, the 6 • .5% estimate was not changed.

Table 6: Regional and world paper consumption for 1954-56 and projected 1964-66 (Million metric tons)

U.S. Canada Western Europe Latin America Asia, ex Japan Japan Africa Oceania

World, ex Bloc

1954-56 aVe

31.33 2.07

14.26 1.76

.97 2.17

.55

.88

53.99

Projected - 1964-66 aVe Average expectations ~inimum expectations

«:1\0 p .c. Cl\c,. e .c...

45 .93 (3.9) 43 .77 (-h-7)3' It-3.09 (4.1) 2094 (3.6)

25.78 (6.1) 24.58 (5.6) 3.70 (7.7) 3.12 (5.9) 2.49 (9.9) 2.29 (9.0) 7.36(13.0) 5.18 (9.1) 1.15 (7.8) 1.15 (7.8) 1.80 (7.4) 1.61 (6.2)

91.30 (5.4) 84.64 (4.6)

- 21 -

indicator of aggregate income growth was obtainable, the projected rate or growth for paper represents an extrapolation of the rate of growth achieved in the period 1951/53-1956/58.

The projections assuming "minimum expectations" are based on a combina­tion of the lower estimates for regional GNP growth shown in Table 5 and either the elasticities in Table 4 or, in the case of Latin America, Oceania and Japan, the a,lternative lO't~l elasticities of demand \vhich were discussed on pages 18 and 19. These "minimum" projected levels of consumption are intended to serve primarily as an additional test of the adequacy or inadequacy of the pulp and paper industry's expansion plans discussed in the next chapter.

On the basis of the results shown in Table 6, then, World ex Bloc paper consumption over the decade between the mid-1950's and the mid-1960's ~, under average expectations regarding future GNP growth and its relationship to paper consumption, be expected to grow at an average rate of 5.4% per year. This would compare with an average growth rate of 6.5% per year between 1947-48 and 1954-56. On the basis of the "m:inimum" assumptions concerning GNP growth and demand elasticities, the rate of gr01'fth would average 4.6% per year. It is interesting to note that either of these projected rates would add a new cycle of reduced growth to those shown on Chart A.

The projected regional rates of growth may be compared to the postwar rates of growth for each region which are shown on Table 7 on the fo11o\iU1g page. It will be noted that the projected regional rates of growth represent a slackening of growth in all regions except Latin America, where an accelera­tion is projected. In Oceania almost no change is expected, except under the "minimum" assumptions. It has already been noted in the discussion of possible future shifts in the income elasticities of demand, however, that ~y such shifts are very likely to be in an upward direction in the low income areas. Hence it should be recognized that the projected rates of growth in demand for paper shown in Table 6 are likely to be on the conservative side in the case of the lower income regions.

The foregoing discussion was in terms of demand for all kinds of paper combined. Some additional correlations analyzing the behavior of demand for newsprint and other paper separately in the postwar period through the late 1950 t s indicated that if each categor.y were projected separately their projected rates of growth would be roughly in the same proportion to each other as were their respective postwar rates of growth, which are shown in Table 7 on the following page. Examination of actual demand gro1.1th in newsprint and other paper separately in the early part of the projection period for this report, i.e. between 1955/56 and 1957/59, indicate that in most regions during that period the rates of growth in each sector did not maintain the same ratio with respect to each other as was recorded in the preceding period 1947/49-1954/56. The exceptions to this were found in the case of the U.S. and Asia ex Japan where the ratio between growth in each of the two sectors was about the same as in the past. In Western Europe newsprint consumption growth weakened somewhat more than consumption growth in other paper during the period in question, and in Canada, Japan and Oceania, it weakened considerably more. On the other hand demand for newsprint strengthened both absolutely and

-22-~2-~~~erll cQnsump~ion bv areas, 1947-4g to lq~4-~6

(1000 metric tons)

Average Average Annual rate 1947-49 19~4-~b of increase

(percent)

EuroEez ex BlacY

Newsprint 1,346 2,693 10.5 Other 6'?;41 112570 9.4

Total 7, 7 14,263 9.6

U.S.A.

Nelisprint 4,695 5,895 3.4 other 18,144 25z433 5.0

Total 22,tl39 31,,32B 4.6 Canada'

Newsprint 273 404 5.8 Other l'43g 12661 5.6

Total 1, 0 2,065 5.6

Latin America

NevJsprint 379 477 3.4 other 845 1, 2~3 6.1

Total 1,224 1,7 a 5.3

Asia! ex Japan

Newsprint 115 225 10.1 Other 289 743 14.4

Total 404 96e 13.3

Japan -Newsprint 100 454 24.1 Other 360 12714 25.0

Total 4bo 2,168 24.8

Africa

Nel'lSprint 71 99 4.8 Other 196 446 1204

Total 267 m 10.7

Oceania

Newsprint 187 314 7.6 Other 343 566 7.4

Total 530 mro 705

cont'd next page

- 23 -

Table 7: (continued)

Avera e 19 7- 9

Soviet Bloc ex Hainland China

Newsprint 355 Other l,85~ Total. 2,,1

Mainland Chinall

Newsprint 32 Other 126

Total EB

11 Including fiberboard and strawboard Y Includes Turkey 21 Reported production only.

Avera~e Annual. rate 1954- 6 of increase

(percent)

512 5.4

n'M8 11.1 , 0 10.8

l41 24+ 697 28+ 83ff 21+

- 24 -

in relation to demand for other paper in Latin America and Africa. It should be noted, hOl-7ever, that the period of time in question, 195h/56-1957 /59, "t-Tould seem to be far too short and subject to the disruptive effects of stagnation ro1d recession~i influences in North Arnerica to provide a basis for firm conclusions about future trends.

P.rosEective demand for pulp in 1964-66

The future demand for paper grade pulP!! ~·dll, of course, be directly related to production oi' and demand for paper. An analysis of paper produc­tion and pulp consumption in the years 1954-56 qy region indicates that, excluding the dissolving variety, pulp made up about 77% (by t-Teight) of the contents of paper~ the remainder being composed largely of reprocessed scrap paper. All but a ver.J small proportion of the paper pulp used in the larger producing areas - Europe, North America, Japan and Oceania is made of wood. The same apr:ears to be true for Africa, although this may partly reflect incomplete statistics. In Latin .America, hOvIever, around 15% of the pulp used in 1954-56 lias from sources other than wood, and in Asia eJ~ Japan around three-fourths of the pulp consumed crone from non-vJ'ood sources. These percentages basically are a natural reflection of the local availability or non-availability of reserves of coniferous and temperate zone hardwoods. Asia is the reGion that is most deficient in these preferred pulping materials t-7hile at the same time having larGe local supplies of bamboo and bagasse; hence that region uses a high proportion of non-wood pulp supplemented by imported long-fibered 1'lood pulp 1'7hich improves the quill ty and strength of' the paper.

It should also be noted that the pulp content of paper varies among regions depending on the product EC of their paper industries. For example, for Canada the ratio of paper grade pulp consumption to paper production is

\ extremely high (around 98%) because of the verry high proportion of neHsprint in its paper production. Newsprint is not only composed alli10st entirely of vTooclpulp but requires slightly more pulp in its manufacture than is retained in the final product. In Africa the ratio of pulp consumption to paper production is suspiciously lOvI (58.3%), possibly reflecting incomplete statistics.

It must +urther be noted that in recent years the pulp content of paper has reportedly crept uptvard in the U.S. but doumward in Europe. Determining the causes of these tendencies is ej~tre~,lely difficult and predicting their future course vTould be rather hazardous. The trend in the U.S. has been attributed to a faster rise, in relation to total paper production, of high quality food packaging board. However, it is difficult to predict whether this trend ",(-1ill continue unabated or whether it nlCW be offset by other developments. For example, certain. "stretchable" papers nou being produced in the U.S. are said to require less pulp than their non-stretchable equiva­lents. Similarly in :Gurope one might eJ'::pect that, 'tITith the rise of American type self-service markets, there would be an acceleration in output of food pacl<:aging board and paper.

"[j Project,ion of future demand for dissolving grades lJ'ould require an a.nalysis of the textile industry and is outside the scope of this study. All remarks hereafter concernine f.uture demand. and supply of pulp will refer only to those grades used in making paper" e:tccept where the contrary is indicated.

- 25 -Assuming that the pulp content of paper vdll not change substantial~

during the projected period, lvorld eJ~ Bloc paper grade pulp requirements in 196i~-66 may reach about 70.2 liullion metric tons (or 65.1 million tons under the miwIW11 projection). This figure, of course, cannot be compared directly vIi th the historical data on pulp such as that shown in Appendix A except in ver.J generaJ. terms because the historical data include rayon pulpc The regional distribution of total l·rorld pulp consumption is shmm in connection 't'r.ith the discussion of future paper production., since demand for pulp as such originates where paper is produced rather than where it is consumed.

- 26 -

IV: Prospects for supplY' and trade

Historical trends in supply and trade

The recent levels and distribution of pulp and paper production were discussed in Chapter Il~ Over the long run world production of pulp and paper has, of course, grown at approximate~ the same rate as consumption, which was also discussed in Chapter II. The pulp and paper in~:h.lstrydoes not seem to have a histor,y of serious or long draw~ out disequilibrium. Based on post -V\.or1d v~ar II experience, disequilibriums arising f,rom over-expansid~ of capacity or from cyclical do~vnswings in demand probably ha,te been rela ti vel~tbrief (because of the strong underlying growth trend in "\cl~~nd) and their disrupti:re effects have undoubtedly been minimized by close coopet~\tion among the Scandl.n­avian producers in coordinating the adjustment of produc'\rion to marke~ demand in such periOds. This policy no doubt has made it easier fc~r North AmerJ..can producers also to adjust output in per~ods of surplus even though, becaus~ of laws regulating the activities of u.s. industry, these ,cannot concert thel.r actions as the other xr.ajor producers do. Disequ.il'ibrilli~ arising from shortage situations also appear to have been comp~rativE'ily short-lived and non-disruptive, even though new capacity requires 2-3 years tOI/build (and hence must anticipate future demand by that long a period) and is relatively expensive·.!1 Despite the effort and costs involved the world industry (\~x Bloc) in the period 1947/49-1954/56 expanded its capacity b.Y an average of 4~7 million tons of paper plus 2 million tons of pulp per year to keep up with the fast growing demand of that period.

World export trade (including the Soviet Bloc) has also been growing with production and demand, riSing from an estimated 2.2 million tons of paper and 2.1 million tons of woodpulp in 1913 to around 11.7 million tons of paper and 8.5 million tons of woodpu1p in 1959. As indicated in Table 8, however, over the long run trade volume has not kept pace with production.~1 It will be noted that the ratio of world exports to production since World War II has been around:l5% lower theJl it was before the war, in the case of paper, but over one-third lower in the case of woodpulp. However. this fall in the ratios appears to have refle,9ted not so much a steady downward trend as a rather abrupt structural lIad»ustmentU between the end of the inter-war period and the first few years of t~e postwar period. The chief factor behind this adjustment seems to;,' have been ~evelopments in the U.S. Under the impetus of wartime and immediate- p()stwar re~uirements. the pulp and paper industry in the U.S. between 1939 and 19.50 almostiidoubled its annual production of paper and more than doubled its a.nnual prodllction of woodpulp. During the same period, however, U.S. imports of wO':idpulp rose by only 20%, while imports of paper increased by

1/ The cost of new integrated capacity in the pulp and paper industr,y is around $500 per annual ton of capacity (i.e., one ton of paper plus the pulp with Which to make it). An integrated steel mill (from blast furnace to rolling mill) is said to cost around $300 per ton of capacity.

l/ The figures in Table 8, however, should not be looked upon as precise indica­tions for they cover only certain widely scattered periods, do not cover pulp other than woodpulp (with some exceptions), and include rayon pulp_ They also include re-exports, so that any trend that the~' indicate reflects in part changes in the trend of the exchange. of pulp and paper among net importing countries. Nevertheless these statistical shortcomings do not invalidate conclusions as to broad lines of development in trade.

- 27 -

Table S:

Com~arison of world ~roduction and e~ort trade ~ ~~1~~~~~ ~a~~. 1~13-12S2 (Million metric tons)

1933 1925-27 1212 1:222 1222 !22§ m.2 Paper and board

A. World production 11.9 19.0 .30.2 44.7 60.7 66.4 73.0 B. World exports 2.2 4.4 6.3 7.9 10.3 10.9 11.7 c. Ratio B:A (percent) 18.5 23.2 20.9 17.8 17.0 16.5 16.1 D. Ratio B:A ex Bloc 1/

(percent) 17.5 16.9 17.6 17.1

't-Ioodpu1p ?:/

E. World production 8 • .3 13.6 23.8 33.7 46.6 50.3 55.0 F. vI or 1d exports 2.1 3.6 6.3 5.3 7.6 7.7 8.5 G. Ratio F:E (percent) 25.3 26.5 26.5 17'.2. 16.3 15.3 15.5 H. Ratio F:E ex Bloc 11

(percent) 17.8 17.1 15.9 16.2

17 I.e., ex USSR and Mainland China only.

~/ Excludes pulp from materials other than wood, includes rayon pulp.

Sources: 191.3-19.37: Streyffert, vlorld 1..~ 1950-1959: FAO, Yearbook of Forest Products Sta~istics.

.,

- 28 -

almost as much as domestic output. The ability of developments in the U.S. to influence the ratios in Table 8 to so great an extent can be understood when one considers that the U.S. aC,9ounts for around 40% of world pulp and paper output (including the Bloc), and that in recent years the U.S~ has been a net importer of over 4 million tons of paper per year (compared to world exports of around 11 million tons) and over It million tons of woodpulp (compar~ to world exports of around 8 million tons).

In view of the foregoing the movements of the trade-production ratios in Table 8 cannot be taken as a "trend" in the strict sense of the term, and it may well be that if the pre-World 1rlar II ratios could be "deflated" to adjust for the once-for-all shift which occurred in the U.S. production-import relationshi during and immediately following the war, it would be found that world trade in pulp and paper has moved more nearly parallel with production and demand than appears from Table B. After 1950 the trade- . production ratios weakened further but stabilized considerably in recent years.

Meantime, however, despite rising production of pulp and paper in all geogr.aphic regions (see Appendix A) the net import deficits of most importing areas rose substantially, increasing by about one-third in the case of paper and one-fifth in the case of woodpulp, between 1950 and 1959. The details appear in Table 9. If the U.S. is omitted from among the deficit areas, (leaving Europe ex Scandinavia, Latin America, all Asia, Africa and Oceania) the percentage increases in the aggregate net import deficits would be greater - almost a doubling for paper and almost a 50% increase for woodpulp. This latter pattern, i.e., the fact that net imports of pulp increased only half as much as net imports of paper, appears to have been determined by develop­ments in Europe and probably reflects both a preference in Scandinavia for selling paper rather than pulp and successful efforts to establish a greatly expanded pulp industr,y in the European countries outside Scandinavia. The latter was made possible thanks to a technical breakthrough in large scale utiliza.tion of temperate hardwoods for pulping purposes, considerably increased imports of pulpwood from Scandinavia, greater recovery of wood formerly wasted in logging{/operations, and some diversion of wood from fuel to industrial uses.

Despite its efforts to increase domestic supplies. however, Europe ex Scandinavia has become the most important import market (as well as one of the fastest groWing) for pulp and paper in the world, surpassing even the U.S. in terms of the pulp-equivalent of its net imports of both pulp and paper. In net importing areas other than the u.s. and Europe ex Scandinavia, it will be noted that.,.since 1950 the net import deficit in paper has increased by about 20% in Latin p~rica, almost 35% in Africa, and by 90% in Asia ex Japan, although declining qy about 20% in Oceania. In pulp, the deficits have in~ed by 3~~ in Latin flmerica, 1300;% in Asia ex Japan, 20% in Oceania and around 15% in Japan. At the same time, Japan developed a modest export surplus in paper, probably directed toward the fast rising demand in Asia; Canada increased its export availabilities qy 20% in paper and 30% in pulp (but apparentlY onlY b,y winning new custom~rs more distant than its most important market, the U.S.); ani Scandinavia, with its favorable location in the European market, experienced a veritable boom in exports, increasing its net exports of paper by almost 90% and of pulp by around 30%.

)~

- 29 -

Table 9: Postwal· development of regional net balances between production and consumption of pulp and naper

(Million metric tons)

Paper Pult! 1950 ~ mQ ~

Scandinavia 1.96 3.71 3.79 4.98

Europe~ ex S candin9~·"ia -0.89 -2.82 -2.99 -4.79 ~/ /--:/

/;/

Total Euro.R~Y;:::-/ 1.07 0.89 0.80 0.19 ;-~-:=:--~;;-::=:::.::::-~~-

Canada 4.54 5.41 1.6, 2.16

u.s .A. -4.29 -4.32 -2.07 -1.61

Total N. America 0.25 1.09 -0.42- 0.55

Latin America -0.66 -0.78 -0.30 -0.39

Africa -0.29 -0.39 1/ 0.02

Japan 0.03 0.11 -0.06 -0.07

Asia ex Japan -0.37 -0.63 -0.01 ~0.14

Oceania -0.33 -0.27 -0.05 -0.06

17 Deficit of less than 10,000 tons.

- 30 -

The effects of all these developments on the position of the main exporting countries in the world. pulp and paper ec'onomy are summarized in Table lOr which shows .changes in the shares of the 'major net exporting areas in world!! pulp and paper production and trade for selected postwar years. It will be noted that the share of world paper production accounted for by the main exporting countries as a group (Scandinavia plus Canada) seems to . have been largely maintained, dropping only from 22% in 1950 to 20% in 1959, but their share of world pulp production fell appreciably from 44% in 1950 to 39% in 1959. Most of this latter fall, however, took place before 1955, suggesting that in more recent years development of new domestic pulp sources in net-importing countries has not been as rapid as before. In export trade the group's share with respect to \vorld trade dropped considerably in both paper and pulp, although its share in the pulp trade stabilized after 19~5, suggesting that in recent years, net-linporting coun~ries have been relying on pulp imports to increase their production of paper.1/

The table also sho'\'J'S clearly, however', that as between Canada and the Scandinavian countries the latter group, ,dth its favorable location in the European market, fared much better than Canada in relation to world production and trade, increasing its share of both world production and trade in the case of paper, and maintaining its share of world pulp production.lI In view of its success in increasing its share of world trade in paper, the drop in Scandinavia's share of world pulp trade lnay reflect a largely voluntar,y diversion of domestic pulp supplies into paper manufacturing in order to export the more valuable finished producto

Regional balances and out~ook for supplies and trade

In the preceding chapter it was estimated that, based on averc.ge expecta­tions for future gro't·rth of GNP, annual 1rlorld (ex Bloc) demand for paper c'Juld be expected to increase over the decade 1954/56 to 1964/66 by over 37 million tons and annual demand for paper-grade pulp by around 28 milli on tons. Even l.mder minimal assumptions concerning future economic growth and elasticit.ies of demand, annual consumption uould rise by over 30 million tons of papar and a~nost 24 million tons of pulp. To meet the expected demand~ the paper industF./, bet'VTeen the mid-1950 I S and the mid-1960 IS, vIill neod to expand an..rlual capaci~~ on the average by some 3.7 million tons of paper per year (against 2.7 million tons per year previously) and by around 2.8 million tons of paper grade pulp per year (against an estimated 2 million tons per year previously). Even under our minimal aSSUl~lpti-ons the ave:cas;e annual increases that would be needed in capacity would be greater than previously (3 million tons per year for paper, 2.4 million tons per year for pulp). HOrJ v·rill these supplies be provided and what ~rill be the impa.ct on international trade?

Thanks to a recent 17 published survey by F AO of planned e;::parlSi ons in pulp

1/ Ex USSR and Mainland China. 2! Such conclusions, hQT,vever, must be viewed with caution since the series on - total Horld export trade may not be homogel1GclUs over time (see footnote 2

on page 26 ). JI Scandinavia IS advantaee, hm-Jever, ma~r not have been entirely Iocational

since Canadian exports in the postuar years v~ere at various times no doubt subject to discrinnnation agailwt dollar ~nports in many countries.

- 31 -

Table 1.Q: Shares of major e!Dorting regions in world!/ DulD and ~~er ~roduction and trade l l2~0-12~2-

(1000 metric tons)

l2~0 1222 - 1228 - 1222 iY ~ '6.7 12 ~/ 1f. ~l Amount

Paper and Board

~vorld ~roduction 42.9

Scandinavia 3.2 7.5 Canada ~ 14.5

Total 9.4 22.0

World ex~orts 11 7.5

Scandinavia 2.0 26.6 Canada ~ 60.0

Total 6.5 86.6

Itloodpulp

World production' 32.1

Scandinavia 6.4 19.9 Canada ..2d:. 24.0

Total 14.1 43.9

World exports 1/ 5.7

Scandinavia 3.,8 66.7 Canada ...L1 29.8

Total 5.5 96 0 5

11 Excludes USSR and Mainland China. ?:./ Percent share of l-lorld total.

Amount

57.4

4#!6 7.3

11.9

9.7

2.8 ...2.:l

8.1

4.3.7

8.4 ~

17.6

7.5

4.4 2 ~ --== 6.5

Amount Amount

61.7 68.1

8.0 5.3 8.6 5.7 12.7 ..:1.dz 12.0 ~

20.7 12.7 20.6 13.6

10.8 11.6

28.9 3.3 30.6 3.7 54.6 -.2 .. 2 47.7 ..i:.4

83.5 8.5 78.3 9.1

46.7 51.4

19.2 9.1 19.5 9.6 21.1 ~ 19.7 ~

40.3 18.3 39.2 19.4

7.5 8.3

58.7 4.5 60.0 5.0 28.0 .b.Q 26.7 ~

86.7 6.5 86.7 7.2

J/ Wo~ld data based on gross export trade, data on major exporting areas.

8.4 11.6

20.0

31.9 46.6

78.5

18.7 19.1

38.8

60.2 26 0 5

86.7

- 32 -

aLd paper capacity throughout the lvorl~ it has been possible, by comparing them 'tvi th projected future demand as cliscussed in Chap-ter III, to analyze whether and, to Hhat e::~tent future de:~land is already being anticipated by the indu.qt~! or, for that matter, over-anticipated. With regard to the trend and fut'lU"e-'level of intGrl'~ational trade t!1ese, in the final analysis, del)end on the net balance bet'tveen demand and domestic supply in each country. A c ountry­by-countI""J anal¥sis, hot-J'ever, would be far beyond -the scope of this paper. As an approxima.tion to such an approach a regional supply-delTland analysis has been undertaken the results of vlhich, 't"dth certain reservations uhich Hill be discussed, may be indi'caJGive of 'the future trend of the regional net trade balances shoL·m in Table 9 and Appendix A.

A su.mn1a.ry of the FAG capacity eJcpansion survey ('t'3'Orld ex Bloc) appears in Table 11, 'tvhich shO't-TS regional pulp and paper capacity in 19.58 ~"1d capacity planned for 1965. As explained in footnotes 4 and .5 of Table 11, since the FAD survey showed North .~erican eJq)al~ion plans only through 1961/62 the data for that region have been adjusted in the table by an estimate of possi~)le ft~ther eJqJansion in ti1at region through 1965. In the case of Scandinavia, announcements of ne"t-J' expansion plans subsequent to the pUblication of the FAO survey indicate that the pulp capacity SJ.10\·Jl1 in the table for 1965 may be increased by as much as an additional one million tons. Since, however, some of this additional planned capaci t:i is admittedly contingent on future market developments (indeed, such a reservation is inlplicitly applicable to much of the planned expansions indicated in the table), and since details ru."e lacking on the correspon~tng paper capacity expansion, the FAG survey data for Scandinavia have not been adjusted in Table 11. HO\ilTeVer, the iml)licat.ions of the additional eJ~pansiol1s in Scandina,,ria are taken into consideration in the analysis of prospective regional supply and demand, 't-J'hich follows.

A summary of the results of confronting the pulp and paper industry's expansion plans as reported by FAO (as adjusted) with future demand as projected in Chapter III appears in Table 12, which indicates the prospective regional supply-demand balances for pulp and paper as of the rnid-1960' s • .,gl Table 12 can only be a first approximation to the possible supp~-demand situation as of the mid-1960's since it shows supply falling short of demand. Before attempting to reconcile this disparity, however, it may be of interest to take nate of the table as it stands. On this basis it would seem that Europe ex Scandinavia would not only continue, as in recent years, to be a fast growing market for pulp and paper but ''lould also emerge as perhaps the most important outlet for the exporting countries. As can be seen from Appendix A,21 the European countries outside Scandinavia have been experiencing a rising import deficit in both pulp and paper since the end of World War II despite increases in that area's production of both products.

11 FAO, 'Wor1d demand for paper through 1975. ~ The interpretation of Tables 11 and 12 is subject to Appendix E, which

explains their construction and contents. y Note that :in Appendix A the dat9. are not adjusted to exclude fiberboard

or dissolving pulp and are therefore only generally compm-able to TabJc J.2.

- 33 -Table 11: Worlg (~ ~loc) ful~ and fa~er ca~cit~/I 1958

and 1~2 !J21anned) (Million metric' tons)

Paper 2:./ Pulp '}./ ~ 1958 ~. 19.22 122.2 Scandinavia 5.21 7.53 9.61 13.46 Europe ex Scandinavia 13.39 15.66 5.21 6.33

Total Europe lS.60 23.19 14.82 19.79

u.S. y 32.62 36.34(39.6) 2/ 22.46 24.69 (26 .38)j/

Canada iJ:/ 8.43 8,63 {9.40):;'/ 11.27 11.93 (12 .81):;.1

Total N. America 41.05 44.97(49.00)21 33.73 36.62 (39.19)5./

latin America 1075 3.07 0.70 2.04

Asia ex Japan 0.70 1.62 0.42 1.04

Japan 3.74 6.00 2.44 4,5J

Africa 0.30 0.47 0.16 0.51

Oceania 0.62 1.02 ..Qd;1. 0.81 66.76 80.34(84C137)g/ 52.74 65031(67.88).21

1/ CapaCity relat€s to the maximum production achievable for short periods of time. Sustainable or normal capacity is 5% less than that shown for Europe and North America; 10% less than that shown for Lati.'1 America, Asia, and Japan, and an estimated 5% less than that shown for other areas.

av Excludes fiberboard, which was not covered in FAD survey. In 1958 fiberboard accounted for about 6% of \tlor1d ex Bloc COXlSu,,'1lpt'ion of paper and board.

2/ Paper grade pulp only.

~/ FAO data only show a figure for North America as a Whole; breakdown between UcS. and Canada has been estimated.

2/ FAO data for North America cover expansion plans only through 1961/62. The figures in parentheses are projections to 1965 assuming that the rate of expansion in the TJ. S. and Canada continued at the same rate as for 1955-62.

~/ Figures in parentheses show totals under assumptions in footnote ~.

Source: Based on FAO, llJor1d Demand for Paper to 1975 • . e

,

«,

Scandinavia Europe ex

Scandinavia

Total Europe

f

,f

Table 12: Projected Regional Balances of Pulp and Paper in 1965: First approximation C~ ~,-'1~")

Paper Ba~ance 1/ Paper Pulp Balance ~I 1965

Under average Under mini-mum expectations assumptions

1958 1965 1957 1958 re: consumption re: consumption 1957

+2.86 +2.81 +4.65 +4.77 +3.99 +).92 -.6.47 -l.96 -2.05 -6.67 -5.67 -4.09 -4.02 -S.43 + .90 + .76 -2.02 - .90 -0.10 -0.10 +1.04

U.t;. ., _·~-4.22 -3.96 -6.20 (-9.30)3/ -4.14 (-7.24)3/ -1.45 -1.51 -3.88 (-4.48)l!. ~ Canada +5.39 +5.18 +6.12 (+5.39 )"1/ +6.2S (+5.52)31 I +1.76 +1.77 +3.14 (+2.65)3/

North America +1.17 +1.22 -0.08 (-3.91)21 +2.11 (-1.72)3/ -0.74 (-1.83)2/ +0.31 +0.26

Latin Am&rica -0.95 -0.B4 -0.85 -0.29 -0.38 -0.32 -0.54 Asia ex Japan -0.61 -0.59 -0.85 -0.67 -0.07 -0.09 -0.21 Africa -0.34 -0.41 -0·57 -0.57 +negl. -0.02 +0.13 !:J:.I Japan +0.10 +0.10 -1.90 +0.26 -0.06 -0.05 +0.12 Oceania -0.28 -0.29 -0.60 -0.44 -0.04 -0.01 -0.,24 VI/orld -6.87 (-10.70)j/ -0.50 (-4.33)5./ -0.44 (-1.53)5.1

1 continued •••

11\ t'I'\

I

.' '( ,

••• /continued

Table 12: Projected Regional Balances of Pulp and Paper in 1965: First approximation

Normal Capacity Consumption under average

expectations

Balance

Consumption under minimum. expectations

Balance

Normal Capacity Pul.p required to supply

normal paper capacity shown above plus e~timated fiberboard capacity

B.alance

(~~k~)

World Balance, 196~5

Paper 11

79.62

86.49

::2.&Z

80.12

~

Paper Pulp g/

64.17

64.61

- .44

(75.79) :il

(60.10) !il

61.63

-1.53

86.49

-10.70

~

-4.33

1/ Paper ~ f'iberboard. Balances in 1965 are based on projected consumption versus Ilnorrnal capacity"; 1957 and 1958 balances are based on actual production and consumption adjusted to exclude fiberboard Where this is a" significant factor (i. e., in Europe).

?:./Assumes IInormal ll capacity operations in paper-making, including fiberboard. 1957 and 1958 balances adjusted to exclude disso1vingpulp.

11 Based on FAJ capa city figures for 1961/62 .• ~Assuming a ratio of pulp to paper of 70% instead of 58.J%,this surplus would be reduced to +0.06. 3.1 Based on FAO capacity for N. America 1961/62.

- 36 -

On the basis of the expansion plans s> .. own in Table 11, tl1is deficit would be likely to grmv further by the mid-1960 I s, rising to over lSi:. million tons of paper per year (more than triple the 1958 net imports) plus almost 5·~ million tons of pulp per year (about one-third more than in 1958) as of that period. Even under ~ur conservative assu.r.1pJGions for grO'tvth in the demand for paper, as discussed in the preceding chal')~cr, tIns area1s deficit by the mid-1960 1s vlould lvould grOl'l substantially, i.e. J to over 5~ million tons of pll}.:er pel" year (the pulp deficit remaining the same as above).

Asia ex Japan is another area 'tihere the prospects, according to Table 12, vlould appear to indicate a substal'l"Gial rise in net imports oi'pulp and paper by the mid-196o I s, 1nth net annual imports rising by some 260,000 tons of pal~r per year and aroUl1d 120,000 tons of pulp per year above their respective 1958 levels. Oceania's net in~)orts of paper would increase by around 300,000 tons per year,d~ing the 1958 level, Hhile its net pulp imports 'would be 3~sing rapidly from 8~ost nothing in 1958 to around 240,000 tons per year in 1965.

In other net importing areas, the prospective trends in future net imports of pulp and paper as indicated by Table 12 are some't.rhat less clear. In Japan, if the income elasticity of demand for paper remains 2.0, the present modest net export surplus of paper could be reversed and 'tvould become an ~nport deficit of close to 2 million tons. If delnand elasticity fell to our alternative suggested level of 1.4, hot-rever, the small net e~cports of recent yeaJ:1s would double, reaching a level of 260,000 tons pOl" year. Hea:tl­time the small net import balance in :Jl'tlp vJould disappear and be replaced by a slightly hieher ej~ort balance. In Latin ~~erica ~here would be no sig~ifi­cant change in the mid-1960 1 s from "Ghe- 1958 net import balance of <240,000 tons of paper per year, except under the conservative alternative asstunption of a fall in the demand elasticity, in ~'Ihich case the Latin American import deficit ill paper 't'lould oocline sub stal1tially to a. level of 290,000 tons per year'. At the Salie tllne, however, net pulp iMports uould almost double, rising to 540,,000 tons l::er year. In Africa Table 12 indica.tes that a substantial rise lIould t~te place in net importation of paper but the recent small deficit in pulp would be succeeded by a modest ejq)ortacle surplus. In the U.S. (after adjusting supply prospects for ·t.l}e fact that the FAO capaci ty survey does not go beyond 1961/62 in that area), the prospects would be for' more than a doubling in annual pulp imports, as compared to 1958, while net ilaports of paper increased byaver one-half of the 1958 level. Under our alternative pessimistic assumptions for demand, the import deficit in paper 't'Tould r~mClin at about the 1957~58 level.

In response to these trends in the net importing. countries Table 12 indicates that the export availabilities of both pulp and paper from Scandinavia (including Austria) vrould increase by around two-thirds from the 1958 levels, to around 4.7 million tons of pa}.:'er and around 6.5 million tons of 'tvoodpulp. Realization of the more recently announced expansion plans for this area would raise both figures, the amounts depending on hOtl]' much of the addi'tionally planned pulp output would be conYerted into paper. Present indications are that Scandinavia plans to build additional paper-making capacity in order to convert at least half of the additional planned pulp output into paper. Cana­dian export availabilities would rise to about 6.1 million tons in the caseof paper (about one-fifth above the 1958 level) and to around 3.1 million tons in the case of pulp (a 75% increase over the 1958 figure).

- 37-

Reconciliation of world and regional balances as of the mid-1960 1 s

As already noted, however, the situation just described would fall short of equilibrium. On a world basis (ex Bloc), if average expectations for GNP growth and elasticity of demand C!,re realized, the presently knO'Wl1

plans for expanding pulp and paper capacity do not measure up to the indicated need as of the mid-1960 ' s and,as indicated in the lower portion of Table 12, fall short of expected demand by up to 7 million tons per year in the case of paper, (almost 11 million tons if we use the unadjusted FAO figures for planned capacity in North America in 1961/62). As indicated in Appendix B the Soviet Bloc is not likely to contribute appreciably, if at all, toward reducing this gap. Under more conservative assumptions concerning future GNP growth and demand elasticities, Table 12 shows that there would still be a gap of around one-half million tons between world (ex Bloc) demand for paper in the mid 1960's and supply based on currently planned expansion in paper-making capacity, but this smaller deficit could be overcome if the additional expansion in pulp capacity planned by Scandinavia since the publication of the FAO survey (half of which is already planned to be converted into paper in Scandinavia) is realized. (The world deficit works out at around 4 million tons, however, if we use the unadjusted FAO figures for planned capacity in North America in 1961/62).

On the pulp side it appears frolil Ta~)le 12 that present lJ'orld ex Bloc pulp expansion plans" even if adjusted in 'the case of North America, Hou1d fall some 400,000 tons short of the amounts that ,·.]'ould be required by the eX:Jected pa:,.;er-rnalcing capacity in 196.5. The additiona.l pulp expansion projects in Scandinavia ~v~u1d, of course, more than overcome this deficit. HOlvever, since paper maldng capaci'oy itself Hould fall w'ell short of paper demand, asstt.iling our avera.Le e~q:;ectc:.tions for GNP grovrth vIere realized, the Gap bet'tveon vlorld planned pulp capaci ty in 1965 and the pL1lp reqt..~ired to make the paper 'that t'Tould be demanded at thc.t time in fact 'tVould approach 6 million tons. If only our minimum expectations for income grO'tvth 1-1ere realized, hO'tVever, the gap bet'Vleen demand for paper and the pulp needed to produce it in the mid-1960's could be met by the a.dditional expansions planned in Scandinavia and not accounted for in Ta.ble 12 (plus of course the additional e;~ansion already assumed for North America betNeen 1961/62 and 1965).

The shortfalls in supply projected under conditions of averaGe expectations for futu!'e demand Gronth, hO~'1ever, cannot be interpreted simply as a prediction of serious shortaGes in pulp and paper in the mid-19uO l s. Assuming that the future grolrth of paper consumption t'rill devel')p at a li10re or less steady pace, as it has in the past, the pressures of demand against supply would be felt \\[ell in advance of any possible shortage in the mid-1960 I s, thus allo~·r.i.l1g time for constructing additional cap,·cJ:cy. Where utilization of existing fore3t reSOlu~ces for industrial purposes is not yet vIell-established" it may take a considerable period to est.ablish adC'd:t,ional pulp and paper capacity even if the existing ralJ materials are suitable for pulp and paper making. In areas l'Thel"e utilization of forests and other sources of fibrous material (e.g. bamboo, stral'T etc.) is already a well es.lGablished part of industrial activity, major expansions of pulp and paper production can take place within 2-3 years, (provided of course that the additional ral'l material reSOlu"ces exist or can be economically diverted

- 38-

from other uses, such as fuel). The pulp and paper producing areas of Europe and North America, Japan and Oceania enjoy such a position and so, increasingly, will the widening areas of pulp and paper production in the less developed areas. Indeed, the further ex~ansions planned in the Scandinavian countries and indications of further expansions in Oceania, tUldoubtedly in response to favorable sales during 1960, indicate that this will be the case. Similarly:in the U.S. and in Canada the pulp and paper industr,y during 1960 revised upward their previous 1961 expansion goals for pulp and paper (particularly pulp). In 1958 the recession in the U.S. and the temporary check in consumption growth for paper caused a wide-spread postponement or cancellation of expansion projects in the U.S. and tUldoubtedly elsewhere. The expansion plans reported in response to the F AO survey of world expapsion plans shortly thereafter may well have reflected a residual pessimism held over from that year. Based on past experience in the U.S. the pulp and paper industr,y probably has a high degree of flexibility in adjusting expansion plans (either upward or downward) to relatively short term market situations.

It is clear, then, that the projected regional balances for the mid-1960's sho-wn in Table 12 nrust be readjusted to allow for the possibilities of either increased export availabilities from exporting regions or greater se1£­sufficiency in the importing regions, or both. It would be impossible to predict how these changes will be made in quantitative terms. It may be useful, however, to consider the possibilities in broad terms.

(a) North America

One of the major adjustments that seem most certain to be worked out over the next five years (even beyond the adjustments already assumed in Tables 11 and 12) is that relating to North America. It seems inconceivable that this region would become a net importer of either pulp or paper. The U.S. and Canada, and especially the latter, in fact have the largest !'eserves of forest resources outside the Soviet Union, and still have a wide margin between the annual increment of wood in their forests and the rate of wood removals in recent years. Moreover they lack neither the investment capital nor the technological and managerial skills needed for the further expansion of their pulp and paper industries. It will be recalled that in adjusting the FAO survey capacity data for the U.S., it was assumed that pulp and paper capacity would grow through 1965 at the same rate as that planned for 1958-62. In the light of the results of Table 12, hot-fever, it seems clear that this assumed rate of expansion ''las cJlored by the re1.ative stagnation of the 1957-58 period. In 1950-56 the rate of expansion was much higher.!! It seems much more realistic to a~sume, therefore, that the rate of increase in U.S. capacity in the futurl? will move more in harmony with whatever rate of growth is realized in domestic consumption and that there will be no such dramatic growth in the U.S. import deficit as that shown in Table 12.

11 In that period U.S. paper production increased by almost 50% and pulp production by almost 30%.

•

•

- 39 -

If the u.s. import balance does not chanGe sreatly by 1965, ru1d if Canada I s exportable surplus remains as s hovm in Table 12, the North American balance in 196,5 v:rill shot,; an e:;-cportable surplus of 2.12-2.25 million tons of paper 8.l'rl 1.59 million tons of pulp. This l1'Juld IZ.':.1 a long io]'a.~,- t,o\vard redressing :bhe imbalance, indicated in Table 12.

It should be recognized, hO't'J'ever, that t,he rate and arilount of Oanada IS

expansion m~T be influenced by the trend in the U.S. import deficit, as well as -bl)3 effect of' -c~1is deficit on the world market. It may 1-1ell be that if the U.8. manages to meet substantially all its additional pulp needs (uhich, however, may in fact be an over-'JpJciinistic assumption), Canada I s pulp production lJill not eJq;and as fast as ass"L'h"Tled in Table 12. Since the last 't'lar Canada has lagged far behind Scandinavia and even behind the U.S. in raising its pulp and paper outputel This lil8.\J reflect (a) possible overdependence on the market;,ing of nev1sprint in the U.S., Hhere newsprint der,mnd has not only been slovJ'-gro\·:r.i.ng but also increasingly supplied from domestic sources; and (b) the fact that, as pUlptvoed operations in Eastern. Canada (the ~·'!est Coast still concentrates on lumber ) move northHard they encounter less thickly Hoeded forests and the Hudson Bay 'tvatershed. The latter means that logs cannot be fleated to the mills farther south and XlnlSt be transported by more expensi-ve means.

lfith time, hm·rever, and almost certainly in the long run, it seems reasonable to, assume that if demal1d in North .A.lnerica and elsevrhere Cal'll10t be met by indigenous supplies (except possibly by a considerable rise in price), the compositien, rate of increase al'rl destination of Oanadian output will respond accordingly. It is interesting to note that between 1950 ru1d 1959 output of,' paper ether than nevlsprint in Canada increased from 22% of total paper and board output to 36% (although the proportions might not have shifted quite that radically in terms of ca1.):1ci ty ).

(b) \vestern Europe

According to Table 12 Western Europe would by the mid-1960's become an important net importer ef paper instead of a net exporter, while in pulp it would be a considerable net exporter. This situation weuld be only partly corrected if the figures were adjusted to take into account the additional one million ton pulp crxpansion plallned for Sc~ndinnvia since completion of the FAO survey, half of which is planned to be converted into paper in Scandinavia. However if there were, in actual practice in the future, serious signs that c'ontinental pulp e:{!)orts Here rising sii,1ultaneously IT.tth imports of paper it would be reasonable to expect either that Scandinavia would convert more of its pulp production into paper for the European market, or that the paper industry in Europe ex Scandinavia l'lOuld expand its domestic paper-making operations based on Scandinavian pulp. Either way the net result l~uld be that Scandinavia's planned expansion of pulp and paper (including the additional expansions not covered by the FAO survey) would be (a) largely absorbed by Europe except for seme 700,000 tons of pulp (assuming that European demand grew according to average expectations), or (b) absorbed to . the extent ef all but about 1.4 million tons of Scandinavian pulp production, if European demand grew according to our rninimum assumptiens. The. 7-1.4 million regional net export surplus of pulp, of course, might be converted in part to paper.

- 40-

If these assumptions are combined vritLl those just discussed Hi th respect to North America, Cana.da Hould be the main supplier of paper (or pL1.1p) to areas outside EurolJe and North America, Hi th sr.1a.ller amounts ceine:: contributed by Scandi,'na\"ia.

Tl~e progress of the t't-TO European trading groups, the European COllUnon Na.rket ,;{EEC) and the European Free Trade Area (EFTA), tOl'1ard becoming separate free trade areas is not likely significantly to alter the fundamental clivision of 't-lesteru Europe between a net surplus area in tihe North and a net (and growing) deficit area in the rest of the area.ll The comnlon market external auties which will ultimately be applied to imp't.Trts of pulp.:. from third countries do not appear to be hi.=.::~ly protective (6% ad valorem), particularly in view of the ph~.:-sical limitations on the local supply of ~'1ood 1irithin the area, and may largely have the effect of increasing the costs of paper rnanuf'actux1ers 'tiho heretofore, in most EEC countries, have imported pulp duty free (about 30% of all pulp used in the ~C countries currently has to be impcrted from outside the area). The COInli1on Harket duty on ne1vsprint also has been set at a rather moderate level of 7%. On the other hand the Common Narket external duties on paper and board as a uhole may have some impact on imports of those products, for 'VThi1e their average level is moderate (presently about 18%; probably 15% after the forthcoming GATT negotiations) and about the sarre as or less than the current average level of most EEC countries , it represents a 50% increase (anticipating the GATT negotiations) over the past averaee level of 'Ghe duties (10%) charged by Germany, which count~J in 1958/59 accounted for almost one-half of 'bhe EEC areal s net imports of paper other than nerJlTsprint. The net effect of the new duties on both pulp and paper may be prim­arily to shift imports from paper to PullJ. The full impact of these duty changes, of course" maJr not be felt until after the mid-196o's.

In the EFTA, the presence of all four major European exporting countries

tI EFTA is composed of Austria, Denmark, Nonvay, Portugal, S't'ITeden, S'toJ'itzerland and the U.K.. Finland is not directly a member but will be associated l1ith it. EEC is composed of Belgiurrl, France, Germany (vlestern) , Italy, Luxembourg and the Netherlands. The "progress" referred to relates to progress to'VTard changine the tariff dut.,y structure of each of the two Groups. F01" the EEC countries tIns 'tdll mean the reduction of duties on illportG (including pulp and paper)fron each other by sta;:;es until they are abolished. Under an a.ccelerated schedule that is likely to be follo't'1ed 30% of tbis goal Hill have been achieved by the end of 1961 and substantial attainment of the Goal 'tdll probably have been reached by 1965. In addition a c or.'D.110n tariff rate has also be~n established on each item of trade 't'Jhich will eventually be applied by each EEC country on imports from outside the EEC area. For most i tams ~~is common external du·ty is the ari thmetic mean of' each EEC country's rate in JanuaI"J 1957, although for some items (includin:; some in the pulp and pc.1pel" ;field) the common rates "ftJere negotiated. The im tiaJ.. step, whereby each EEC country's tariff rates against non-members have been raised or lowered 10% of the c:.listance toward the common rate, has been tal<:en. Addi tiona1 progress in this respect by 1965 probably will not be as great as in the case of intra-member tariff reduction. Wi'bh regard to the EFTA group no cornnon external duty is contemplated but, as is the case ,nth the EEC, trade among the members ttill become duty free in stages, pel"haps trl:~h some exceptions, and 20% of this goal has been achieved thus far.

-41-

will hardly stimulate the grotvth of doine~\tic pulp ani paper industries in the deficit countries of the Area.l/ The gradual reduction of duties among -the member c~untries, hO'Hever, shoUld not have too great an unfavorable impact on the current pulp-producing sector of the industry in the deficit countries since ir;~")ort duties on that item already are 101-' 0:' free. The same is true of net~sprint in the case of the U.K., ir7hich accounts for the bulk of EFTA's net imports. The rest of the pa.per-making industry of the r:FTA deficit countries, hololever,2/ ldll lose the protection of a current import duty level ranG"1.:rl[:~ betvTeen l3%-and 2Cf/o.2! No doubt part of the paper~1ilal<:ing industry in the EFTA deficit countries will beco~,ie marginal as this protection is rer:loved. HO'tiever , it seems unlikely that fll1Y sizeable part of the existing industry in th~se countries will be all01'led to go into a precipitous clacline. 1'Ji tIl t~le total pulp and paper market grotving at the project.ed rates, it vJo'llld seem logical to expect the Sca..."1dinavian e::;p orters to e:>~ercise restraint in deepening their penetration of markets va thin EFTA. In -Ghe short run ovei~­emphasis on eJQ,)orts to that market would only tend to divert supplies from other markets 'Hhose development 'toJ'ould be equally important to the exporting countries. In the longer run, there m.ay be a tendency for pa~er producers 1n the EFTA countriestQ concentrate on making paper products requiring small production runs tailored to the needs of individual local markets, 1'Thile the major EFTA exporters may be expected to concentrate on the marketing of standard paper products in which economies of large scale production are more easily secured.

Summarizing, the most likely outcome of the development of the tvJ'O free trade groupings may be, over the lone run (assuming 'lihey will become porrrlanent institutions)" some't.rhat to inhi'bit or slow dO'tID the further expansion of pulp and pafer production in the non-8candinavian EFTA countries (although the q;bsence of large wood res:Jurces 1~ould be likely to accomplish the sarne end in any case). In the EEO area the advantages accruing to domestic producers as a resuJx of both the rise in the external duties covering paper ~nports into Germany and the reduction of duties on intra-EEC trade may encourage a larger production of paper than might otherwise have been expected" but again any retat'dation of gro-vJth in paper imports may be offset by an acceleration of grovrth in pulp imports.

With regc~"'d to Hestern Europe as a 't'rhole, the possibility, indicated in Table 12, of that area1s 10sil1(;; its posiiion as a net supplier to the rest of the uorld and possibly even becoming a net deficit area in paper (although this seems unlikely 1ltltil after 196.5) seems more reasonable than the same possibility in the case of Eorth .lil'.lerica because Europe should by ru1Y standard be operating nmch closer to the limit of its lorood and o·ther fiber resources than is North America. ROlIever, it has already been noted that the

1/ These' are the U .IC., Stdtzerland, Denmark and Port.ugal. 2/ Includinc: the SHiss manufacturers 8f newsprint, 1oJ'ho currently seem to be - . completely protected by a 295; import duty. 3/ Except nenspril1:t in Switzerland (see footnote 2). This discussionis based - or~y on information relating to the U.K., Denmark and Switzerland.

- 42 -

Scandinavian countries are planning additional e::;qJansions beyond those accounted for by the FAD survey. It is also significant that the results of successive forest inventories ru1d intensified rorest manacement in the past hav-e tended to raise the annual felling limit in Europe, and these may continue to do so for some time. Both Scandinavia and the rest of Eur01Jeare planning to increase their 'trTood fellings through 1970 ( although at a much slol.J'er rate than in the 1950-55 period) and both areas Cru1 (and indeed may have to) count on large diversions of fuelw'ood in the future. Taking into account these factors and -the kncnm acldi tional e::cpansion plans for Scandinavia the prospect in Europe as a whole, then, appears to be that if average eJrpectations of incot1e grot-J'th are realized, Europe hy the 11lid-1960 I S 'tull still be a net e:~qJ01"ter to '~,he extent of around 700,000 tons of pulp (or its equivalent in paper). This compares 'tdth European net exports of 560,000 tons (pulp equivalent) in 1957 and h50,ooo tons in 1953. Under our a.lternative minimum assumptions for income gr01;\Tth, Europe I s net export position 'Hould increase in the mid-196o l s to the level of around 1.4 million tons (pulp eqUivalent,).

(c) Other regi~

It is difficult to comnX3nt in detail on the pulp and paper trade balance of other regions slIo"tvn in Table 12 because of the greater degree of uncertainty concerning conditions of production. In most of these other r::gions the recurrent scarcity of foreign exchange excercises a constant pressure to increase internal production of pulp and paper. On the other hand, often despite governmental encouragement, the sCBJ:'ci t~l of capital, the frequent necessity of relying on less preferred fibrous material such as bagasse, bamboo and. mixed woods, and other technological and economic problems, usually deter faster progress than lwula1 seem desirable in viel,r of the 111 arkct pot0nti~1. The development oiJ' the pulp and paper deficits in,Latin America and Asia ex Japan therefore (assuming average expectattons for income grOiifth), HOuiCI seem 't-J'el! 't-n thin the reilil of possibility and may be under­stated, considering the possibilities that future income grO'tvth or elasticity of demand, or both,may turn out to be higher thaJ.1 assumed in this report. This assumes, of course, that governtlental measures to encourage import substitution 'Ldll not be unduly intensified.l/ 1rlith regard to Africa, it would seem probable that more of the planned-pulp capacity might be converted into paper, in vievJ of the tendency of the paper import deficit to rise. For the same reasons just mentioned in COlUlectiol1 't'lith Asia ex Japan and Latin .ArC!; rica, hO'tV'ever, Africa l s projected import deficit in paper may be under­estimated. In Oceania, it is p{fficult to believe that pulp and paper imports will be allO'tved to increase q(~.)~ as nmch as indicated in Table 12. The planned expansion reported to the FAO Survey may nell have reflected a pessimistic assessment by the industJ:""lJ of the future grO'tV'th of the paper market in that region. The same ma.y be true of Japan uhere, in vie't'J' of the postl-J'ar record of aEaost substantial self sufficiency, one remains skeptical that a net paper import deficit of almost 2 nlilJ"ion tons per year 'Hill develop ld thin fi va ?{o.'?l"'S. It seems almost certain that the industry in Ja:na.l1 ':xl.scd ita eXl)~.nsio!1 'r)l,ln~, as reported to FA C', on the n.s~)Ui'nl)tio~"'!. thn:i;, t,h~ inco~ne clesticity

!I It should be noted that in recent vreeks the newsprint importers in Brazil were given a much less favorable eEchange rate than previously; india increased its duties on pulp and netrlsprint and further raised its already verJ' high duties on other pa.per,; and the Dominican Republic imposed a tax on jJ",lported wr~pping paper.

- 43 -

of demand for paper would fall from 2.0 to 1.4 (which would result in the export surplus shown in Table 12 under conditions of low consumption growth), although as of 1958 no such development was yet apparent. Even if Japanese paper consumption begins to lag behind income growth, however, it may well not do so so rapidly as to reach a ratio of 1.4 by the mid-1960's.

On the other hand, if Japan were faced "d.th a rising paper import deficit in the mid-1960 r s, it would become increasingly difficult for it to obtain the additional raw material that will be necessary if the country is to maintain its postwar self-sufficiency. The islands' forests in use are apparently already being overcut and the fact that Japan produces only relatively minor amounts of pulp from materials other than wood indicates that its non-wood fibrous resources (such as rice straw) are not economically suited to large­scale paper production. It seems reasonable to assume therefore that while Japan somehol'1 may manage to avoid the extremely heavy net imports of paper in the mid-1960's as indicated by Table 12, it is equally unlikely to remain an exporter of paper, as has been the case in recent years.

Conclusions concerning market grO't,rth c?.nd trade

In light of the foregOing discussion the follo~dng conclusions lrould appear 'tvarranted:

(a) Based on Hhat may realistically be expected as to the grm-rth of world consmnption of pulp and paper over the next five years (i.e. assluning the average expectations for income grm·rth), currently known expansion goals in the 't,,"orld pulp and paper industry (col.1prising the information in the FAD survey 1·dthout adjustment for l';orth America, but taking into account the more recently announced expansion plans in Scandinavia) v.Tould need to be raised in order to keep up lin. th future demand. OT1~Y under the T.lOSt conser­vative asstunptiol1s of future market Gro-vrth Hould there be no need to raise current kno't,n1 expansion goals (except in IJorth America) but these alternative demand prOjections are believed to be too Iml to serve as a realistic guide for future action.

(b) Huch of the gap bett,reen future l10rld supply and demand, hOir.rever, reflects (i) incomplete kno't.rledge of future expansion plans in North Ar.lerica and (ii) the likelihood that the Japanese industry has thus far tailored its expansion plans to a conservative estimate of future Japanese demand. There is eve~J expectation that additional producing capacity -vJill ~)e installed in the U.S., and also in Japan, if a faster rate of grov~h is achieved in demand. Such additional expansions in supply probably -VJould have the result that by the mid-1960's the net trade balm1ces of the U.S. and Japan res­pecti vely, lrJould not deteriorate substantially from Hhat they 't'Jere in recent years, although Japan may Hell turn from being a small net exporter of paper to a r:lOdera.te net importer.

(0) In most other deficit regions of the world, including Europe ex Scandinavia, the obstacles tio increasing capacity beyond that currently planned are considerable and the prospect is for rising import deficits in paper, pulp, or both.

- 44 .. -

(d) Under the supply assmuptions for the U.S. and Japan discussed in (b) above, and assU!l1ing that Scandinavia ca.rries out fully all its presently knot-m expansion plans, the prospect is for a substantial balance betlveen demand and supply in the viorld ex Bloc pulp and palJer ecol1otry as of the mid-19601 s asswning realization of ~rur average e:;cpectatiol1s for crol·Jth in consumption of pa:r:er. If 1-Torld paper consumption crolVth achieves only the levels projected under our minllITUm asstunptions, the prospects are for a slight 'e:iccess of supply over demand in the mid-1960's - in the order of .3-L~)~ of nor­rllal capacity on a 1-10r Id lude basis. This st1I"plus, hO'tvever, appears to be lrell ~rithin the probable margin of error in the projections. Horeover, such a situation would be likely to be signalled in advance by a deceleration in consulllption grovrth in the next few years and ~v-ould probably result in the postponement or cancellation of expansion projects not scheduled to be carried out until one or two years hence.

(e) On the Ln101e, therefore, pulp and paper producers face a favorable marketing situation over the' next five years and can proceed lnth their ffi1l10tmced expansion programs 'Hi th a reasonable degree of confidence. 1'-1hile grouth in the market is expected to be relatively vigorous on the average, houever, temporary checks and setbacks to gro'tvth are to be expected from time to tLme under the influence of the overall economic cycle. As an illustratioIl of 'tv-hat could be in store despite favorable long run market prospects, it might be pointed out that within the period of the projections made in this report (1954-56 to 1964-66) a temporary stagnation in grov~h has already occurred u,nder the influence of the E:::rth Alaerican recession in 1957 and 1958 (coupled vrl. th the continuing expansion in pulp and paper capacity) 1v-11ich caused pulp and paper production to fall 7-91:' belovJ' normal operating capacit-j' in l\Iorth .Araerica and 1:Jestern ~urope as a whole, and much more in individual ej~porting countries a.nd for individual firms.

(f) Unfortunately it is difficult to translate the results of the fore­going analysis into terms comparable to the lone-term trade/production ratios shown in Tables 8 and 10 and discussed in the related text. Those ratios are based on gross lv-orld e=q:>ort trade while the later analysis is in terms of net regional eJ~ort or Dnport balances. In view of the prospects for grm·dng net imports for a number of regions, however, especially Europe ex Scandinavia, it does not seem unreasonable to eJ<..-pect that the 1'Jorld t:r,ade/production ratios may tend to rise rather than fall during the period through the mid-1960's. In addition, if the U.S. and Japan do not succeed in meeting more of their consumption requirements from increased domestic production, the volume of trade 'Nill be further stimulated and the main eX',;>ort surplus areas, Scandinavia and Canada (provided the latter continues to expand after 1962), may 1-J'e11 increase t,11eir share of both world production and trade from the recent levels shown in Table 10. If the U.S. and Japan do succeed in keeping their import deficits at about recent levels, it is asstrraed that the main exporting areas r share of both 1'Torld production and trade will not change significantly from the levels of recent years.

# ~

AEEendix A. 0

Pull) 811d paper producti.cn. ~nd cO:Q.f3UJnption .. by rogions, 1?48-1.9·S9 . - (Millions of met I'1 c ljons) -- --- - -

Europe ex Scandinavia 1/ 1948 1950 1952 1953 1954 1955 1956 1957 1958 1959

Paper production 5.55 7.72 7.70 8.79 10.11 10.98 11.54 12.37 12.60 13 •. 46 Paper cons~tion 6&19 8.53 8.49 9.77 1l.50 12.73 13.41 14.66 14.97 16.06 Balance -0.64 -0.81 -0.79 -0.98 -1.39 -1.80 -1.87 -2.29 -2.37 -2.60 . Of which newsprint .21 .18 .41 .38 .55 .71 .80 .91 .95 .91

Other .43 .63 .38 .60 .84 1.09 1.07 1.38 1 .. 42 1.69

Wood pulp production 1.56 2019 2.26 2.41 2.80 3.07 3.32 3853 3.57 3.99 Wood pulp consumption 3.80 5.18 4099 50 62 6.65 ~ 7.76 8.09 8.02 8.78 Balance -2.24 -2.99 -2.73 -3.2l -3.85 -4.37 -4.44 -4.56 -4.45 -4.79

Producti on of pulp other than of wood 064 .78 .78 .80 .96 1.01 .97 .95 1.03 1.08

Scandinavia 11 I

~ Paper production 2.83 3.18 3.10 3.49 4.12 4.56 4.81 5.18 5.25 5.72 I Paper consumption 1.29 1.22 1.36 1.34 1.61 1.75 1.75 1.87 1.95 2.01 Balance 1.59 1.96 1.74 2.15 2.51 2.81 3~06 3.31 3.30 3.71

'\'lood pulp production 5.69 6.43 6.27 6.63 7.81 8.44 8.83 9.28 9.07 9.58 vlood pulp consumpti on 2.81 2.64 3.16 2.74 3.65 4.02 4.12 4.64 4.54 4060 Balance 2.88 3.79 3.11 3.89 4.16 4.42 4.71 4.64 4.53 4.98

Europe, net position

Paper balance .95 1.15 .95 1.17 1.12 1.01 .. 1·~19 1.02 .93 1.11 ~"lood pulp balance .64 .80 .38 .68 .31 .05 .28 .09 .08 .19

11 "Europe" excludes the Soviet Bloc; Austria is included 'tdth Scandinavia.

" ~

PuliJ ').nd p3.pe:e rrodtlcticn ,and eOl"lSu.mpt:ton by roc:io~s, 1~h8-19·5~ (J.\llij~ions of ltlotric tons)

U.S.A. 1948 1950 1952 1953. 1954 1955 1956 1957 1958 1959

Paper Drcriuction 19.83 22.11 22.16 24.09 24.18 28.16 28.55 27.82 27.95 31.36 Paper consumption 23.65 26.40 26.40 28.44 28;a33 32~43 33.22 32.04 31891 35.68 Balance -3.82 -4.29 -4.24 -4.35 -4.15 -4.27 -4.67 -4.22 -3.96 -4.32

Of which newsprint -3.96 -4.37 -4.47 -h.50 -4.40 -4.49 -4.92 -4.58 -4.31 -4.67 Other .14 .08 .23 .15 .25 .22 .24 .36 .35 .35

~rJood -9ulP production 11.68 13.47 14.94 15.91 16.56 18.82 20 0 0B 19.78 19.77 22.01 vIood pulp c onsumpti on 13.57 15.54 16.47 17.72 18.02 20.25 21.72 21.12 21.21 23.62 Balance -1.89 -2.07 -1.53 -1.81 -1.46 -1.43 -1.64 -1.34 -1.44 -1.61

Praiuction of pulp other than of wood .66 .66 .54 .56 .54 .60 .56 .49 .46 .45

Canad~ I ~

Paper production 5.85 6.18 6.53 6.69 6.94 7.26 7.71 7.55 7.36 7.87 0\

Paper consumption 1.44- 1.64 1.63 1,78 1.93 2.00 b..?:1 2.16 2 .. 18 2.46 I

Balance 4.41 4.54 4.90 4.91 5.01 5.26 5.44 5.39 5.18 5.'41

l'lood pulp pro'duction 7.06 7.69 8.14 8.24 8.78 9.2l 9.74 9.46 9.20 9.83 Wood pulp consumption 5.46 6.0k 60 43 6.51 6 .. 84 7Cl12 7.64 7.45 7.23 ~ Balance 1.60 1.65 1.71 1.73 11194 2a09 2.10 2.01 ls97 2.1

Production of pulp other than of wood .03 .04 .04 .03 .03 .04 003 .03 003 .03

N. America, net position

Pape r balance 0.49 0.25 0.66 0.56 0.86 0.99 0.77 1.17 1.22 1.09 Wood pulp balance -0.29 -0.42 -0.18 -0.08 0.48 0.66 0.46 0.67 0.53 0.55

''\

.... Pulp ~nd PC];')I' product.ion ~nd consu;·.iJ. tic:~l?Y .r(~Li()rlS, 1946-1959

194$ 1950 (1,tlllions of metric tons)y'

Asia ex Janan !9.51 1953 1954 195'"

Pape rproduc tion 0.15 0.17 0.23 0.26 0.32 0.40 Paper consumption QJil ~ o~~ 0.72 0.86 0.98 Balance -0.32 -0.37 -0.3 -0.46 -0.54 -0.58

Of 1'fhich newsprint .13 .16 .. l2 .1B .19 024 Otrer .19 .2l , .. 24 •. 2B .35 .34 Wood pulp production ~ 8 7 15 23 2S 27 Wood pulp consumption E/ 18 17 28 45 80 --1J. Balance y -10 --:yo -13 --=22 -52 -50 Production of pulp

other than of wood y ill 123 161 167 188 219 Japan

Paper production Oe44 0.89 1.36 1.77 1.94 2.22 Paper consumption 0.44- 0.86 1.35 1.71 1.88 2.15 Balance 0.03 0.01 0.06 0.07

Pulp production 0.41 0.72 1.19 1.50 1.63 1.90 Pulp consun~tion 0.43 0.78 1.24 1.62 1.74 1.98 Balance -0.02 -0.06 -0.05 -G.I2 -0 .. 11 -O.OB .. _ ... a- .... _ .............. "' ......

Production of pulp other tm n of wood .03 .05 .01 .01 .01

Y Except, for Asia ex Japan pulp data", which are shown in 1000 metric tonse Y See note 1 above ..

1956 . 1957

0.49 0~56 1.06 1.1?

-0.57 -D.bf .18 .22 .39 .39

33 31 8k 100

-51 -=69

234 253

2.59 2.99 2.48 2.89 0.11 o:I5

2.18 2.44 2.32 2.62

-0.14 -0.18

.02 .04

'"

195$ 1959

0.63 .69 1.22 1.~2

-Cf.-59 -0. 3 .21 .25 038 .38

39 49 ..1J1 206 -92 ::r37

323 371 I

S I

3.04 3.90 2.94 3.79 .10 .ll

2.34 2.98 2.32 3.05

-OeOS :-;or;

.03 .03

~ ~\

..

PuJz: :~fct"";_:: .. ~;:x}r pr~dtlction c:::.l~CLC0l1.STIr~~tion b:T 1"'3, ~:i,o.n..s~. 1948-1959 (I -'j lliona of l1l3 tric tons )'f;

Latin America 1948 1950 1952 1953 195~ 1955 1956 !221 1958 1959

Paper production 0.60 0.74 0.77 0.81 0.92 1.08 1.20 1.43 1.55 1.62 Paper cons~tion 1.22 1.40 1.40 1.32 1.46 1.00 2.02 2.38 2.39 2.40 Balance -0.62 -0":66 -0.63 -0.51 -0.54 -0.72 -0.82 -0.95 -0.84 onO.78

Of which newsprint .35 .34 .40 .33 .35 .42 .46 .56 .51 .48 other .27 .32 .23 .18 .19 .3) .36 .39 .33 .30

Wood pulp production 0.17 0.23 0025 0.,26 0.31 0 11 32 0.33 0.36 0.45 0.49 Wood pulp consumption 0.34- 0.53 0.56 0..49 0.79 0.83 0.78 0.80 0.83 0.88 Balance -0.17 -0.30 -0.31 -0.23 -0.48 -0.51 -0.44 -0.44 -0.38 -0.39

Production of pulp oth er than of wood .03 .04 .06 .08 .12 .15 .16 .17 .,17 .18

Africa I ~

Paper production 0.04 0.06 0.10 0.14 0.21 0.25 0.26 0.28 .34 .37 CD

Paper conswmption 0.29 0.35 0.42 ·0,42 0.51 0.57 0.56 0.62 .75 .76 I

Balance -0.25 -0.29 -0.32 -0.28 -0.30 -0.32 -0.30 -0:-34 -.41 -.39 Of which nel'lsprint .08 .08 .09 .08 .08 .10 .12 .12 .14 .14 Other .17 .21 .23 .20 .22 .22 .18 .22 .27 .25

Wood pul9 production ?J 10 17 28 39 50 84 114 135 145 145 l1food pulp consumption y 14 25 ---2.2. ~ 77 116 119 131 121 128 Balance y --=4 ---:g -7 -23 -27 -32 -=5 4 24 17

Production of pulp other than of wood y 20 25 35 35 45 55 55 55

Oceania

Paper production 0.25 0.29 0.33 0.30 0.43 0.53 0.60 0.64 .69 .75 Paper consumption ;~~55 0.56 0.81 0.50 0.74 0.97 0.92 0.92 .98 !..:.Qg Balance -0.30 -0.33 -0.48 -0.20 -0.31 -0.44- -0.32 -0.28 -0.29 -0.27

Of which newsprint .14 .18 .21 .13 .19 .26 .19 .18 .17 .17 Other .16 .15 .27 .07 .12 .18 .13 .10 .12 .10

••• continued

•••• continued

Pulp al'J.0. p:~Ix~r :;..;roduction and consllI:1rtion 1)7 r~,£:i ans, 19h3-1959 O"Iillions of metric tons) Y

Oceania 1945 1950 l22 1953 1954 1955

Wood pulp production 0.13 0.15 0.21 0.23 0.31 0.36 lrlood pulp consumption 0.19 0.20 0.28 0.26 0.36 0.42 Balance -0.06 -0.05 -0.07 -0.03 -0.05 -0.07

Production of pulp other than of wood .01 .01 .01 .01 .01 .01

y Except for Africa, pulp data for which are shown in 1000 metric tons.

Y See not e 1 above.

1956 1957

0.49 0.52 0.53 0.57

-0.04 -0.05

.01 .01

195a 1952

0.54 0.57 0.56 0.6g -0.02 -0.0

.01 .01

D

~ I

- 50 -

Appendix B.

Outlook for the net trade position of the Soviet Bloc Countries (excluding £.'Iainlan:l China)

Table B-1 of this Appendix shows the development of the net trade position of the Soviet Bloc in pulp m1d paper since 1950. The table excludes Mainland China becau(~e of the complete absence of data on that country's pulp and paper trade~'l Hot-rever, it is not knotm whether the trade data shotvn in the table includesa~ports to that country. The pulp data in the table probably include dissolving, as well as pap3r grade, "C-roodpulp.

The table indicates that during the course of the 1950 l s the Soviet Bloc area, excluding Hainland China, experienced a gradually diminishing net e;,cport position and finally became a net importer of pulp and paper as a lIhole, managing to maintain its initial position of net exporter only in the case of ne't-J'sprint. In the ear~ years of the p:;riod covered in the table the USSR '-las a net exporter of pulp and ne"C-lsprint, but a net imr::orter of other paper. Exports from the rest of the Bloc, h01vever, more than made up for the USSR's deficit in the latter category. By ·t,he end of the period the USSR still maintained its net e}.."'Port position in nevIsprint and had consider­ably increased its net eArports of pulp, but was importing much more II other paper" than previously. The other Bloc countries, meantime, had changed from n:.t' exporters of paper to net importers (of modest proportions) ana their trade position in pulp had changed from a small deficit position to a larger one.1(

It appears, then, that during the period 1950-59 the aggregate pa.per and pulp consumption of the Soviet Bloc countries grew' faster than the expansion of the pulp and paper industry in that area. For most of this period (i.e., for the years 19LJ.7/49.,·1954/56) paper consumption in the Bloc (ex Nainland China) was grovrlng at a rate of almost 11% per year, faster than the rates of grm-Ith recorded in most regions but not much faster than that recorded in Western Europe. In the more recent period 1954/56-1957/59 the rate of grovrth slackened, as it did in most reg:i.ons of the 'tvorld, a.veraging around 7% per year • Despite "this, hOl1ever, the Bloc t s net im:')ort deficit in pulp and paper continued to grO't-r.

Possibly as a consequence of the inability of the domestic industry to lceep pace 'tdth the rise in demand, paI::er consumption growth in the Soviet Bloc appears to have lagged behind the rate of grmvth in aggregate income for the area during the period 1949-59. During that period the ra-tio of the rate of grot-Ith in pa.per consumption to the 8otilllc'l.'tGd rate of ~ro1'rt,h in aggregate

!I It is possible, however, that the data on the net trade position in vlood­pulp may in fact conceal a large net i~port balance for dissolving pulp which liould be partly offset by a l}et export balance in paper grade pulp_ Such a situation 't.fould help to aC9Jnnt for the discrepancies on the pulp side of Table 12 in the body of 1':;'11is report. If such is the case, the trend in the Bloc's trade position in pulp in the period 1950-59 lnight turn out to have rei'lec·t,ed, vIi th respect to paper grade pulp, a declining net e~~ort balance ratiler than a change from a net export balance to a net import balance. In the absence of more info~nation, however, one can only speculate on this problem.

- 51-

Bloc income!! works out to only 0.86. This may be compared to the income elasticities of demand observed in non-Bloc areas, which ranged from 1.1 in the U.S. and 1.7 in vlestem Europe to 2.0 in Japan.

In the period through 1965 planned in20)I1e growth in the Soviet Bloc works out to an average of around 7.1% per year.~ If paper consumption gro~h were maintained at the same ratio to income growth as in the preceding period 1949-59, Soviet Bloc paper consumption in 1965 (excluding fiberboard) would reach some 7.9 million metric tons. The Bloc's pulp and paper expansion goals for 1965, however, call tor a capacity of 10.1 million tons of paper (see Table E-2) which, at an operating rate of 95%, would yield a domestic supply of 9.6 million tons.J7 Hence the Soviet Bloc would have a choice between (a) main­taining the past paper consumption-income gro",rt,h ratio, which would allotlJ' it to become a net exporter of some 1.7 million tons of paper per year, and (b) permitting the paper consumption-income growth ratio to rise as high as 1.3 without the need to import pulp and paper from the outside.

lli is, of course, difficult to determine l·rith any certainty 't-1hat the intentions of the Soviet Bloc may be regarding its future pulp and paper consumption and trade. The available evidence, hO't-Tever, indicates that the planned expansiofl. in pr oduction is being undertaken primarily 'tv.i.. th a vieloJ' to meeting internal needs. The Blocls past ratio of paper consumption growth to incom.e growth appears to be inordinately 10'~'1 in comparison 't-dth a range of 1.0-2.0 observed in other regions. This in fact seems to be confirmed by recent reports that shortages of paper are being e'"Aperienced in the USSR. On the other hand a future ratio of 1.3 or thereabouts, while still consider­ably less than the ratio of 1.7 observed in vJestern ~urope, \·rou1d seem more consistent than the previous ratio 't.n. th the aVOlved aim of the USSR and other Soviet Bloc countries of increasing living sta~dards and, in particular, the output and quality of consumer goods. Further evidence that the Soviet Bloc's pulp and paper expansion plans may reflect primarily a desire' to meet the needs of the home market may be seen in the·:C;;.~,ct that the pulp and paper industry in the USSR in recent months has been '~~J;le target of vddely reported severe criticism by a high level Soviet official for its failure to keep pace 't·rith the established production goals. In ilnditton, there ha'Ye been nu~erous references in the press to the crrcct that considernblc effort in be1n:'5 mad(:-), especially in the So vi at Union, to increase tho utilization of non-'t'lC)od materltla (primtlrily reeds) as a source of pulp. Considering how

Y An estimated weighted average ra.lCle of growth in national income 'lvas lvorked out for the Soviet Bloc by vreighting published data on tre 'Y.'ates of growth for each country during the period 1949-59 by estimates of aggregate national income in each countr,y as published by Usui and Hagen in World Income, 1957, Cambridge (Mass), 1959.

?i Based on the l'1eighted average of plal1re d growth rates of individual countries. Data on pla.nned future rates of grO'tith in individual countries taken from too 30th P..nnuaJ. Report of the Bank for'Incernational Se-t,t1ements.

}/ The pulp expansion goals for 196,5, shown in Table B-2, represent, a slight decline in the ratio of woodpu1p capacity to paper-making capacity. This may reflect plans to increase the proportion of non-wood pulp in domesti,c paper production.

- 52 -

well the USSR is endowed with wood resources, this suggests that difficulties may have been encountered in exploiting the countr.y1s reserve of virgin forest, much of which lies in the less easily'accessible eastern and northern regions of the country. It 't'rould seem unlikely that the govern­ment would calIon the paper industry to rely on non-wood materials, which usually result in higher costs or poorer quality, or bot~for the purposes of promoting exports outside the Bloc.

It is, of course, possible that the Soviet Bloc really intends to become a major exporter of pulp and paper to the 'Nest by the mid-1960 IS. In none of the evidence examined, however, was there any hint that this is the case~ In the light of this and of the evidence examined above, it seem$more reasonable to assume that although by the mid-19601s the Soviet Bloc may reverse the postwar trend of its pulp and paper trade and become largely self·· sufficient in those commodities (possibly with occasional export surpluses) it is unlikely to become an established net exporter in significant amounts. It might be noted that this assumption is in line with what appears to be the consensus of published opinion, namely, that in the foreseeable future the Soviet Bloc is unlikely to become a competitor in ltlestern export markets for pulp and paper.

.-

......

:4!

- 53 -

Table B-l: Net trade positio~/of the Soviet Bloc countries (1000 Millio" tons)

~c..

1950 1951 1952 1953 1954 1955 1956

Bloc ex Mtti~t~~t1d China

Nel-1Sp rint 20 73 59 5, 35 66 61 other paper 110 101 82 62 92 -15

Total Paper 130 174 141 117 127 66 46

Chemical ~ulp y 51 31 33 -1, .,.23 -12 -26 Mechanical pulp -11 -4 -14 -14 -1, -3 -13

Total pulp 40 27 19 -29 -38 -15 -39

USSR only

Newsprint 21 75 56 39 30 40 47 other paper ... 16 -2 -14 -61 -17 -80 -94

Total pap~r 5 73 42 -22 13 -40 -47

Chemical ~ulp 2/ 65 66 68 71 73 100 91 Mechanical pulp -8 -12 -11 -7 -10

Total pulp 53 66 56 60 66 100 81

!I Positive number indicates net exports; negative, net imports.

Sf Probably includes dissolving pulp.

Source: FAO Yearbooks of Forest Products Statistics.

1957

63 -6,

-2

-94 -21

-115

46 -119 -73

69 -17

52

1958 1959

75 55 -81 -78 -6 -23

-10 .... 6 -32 -30 -42 -36

59 65 -99 -71 -40 -6

143 139 -10 133 139

- 54 -Table B-2: Soviet Bloc pulp and paper!! caEacityz 1958-1965

(1000 metric tons)

~~

1958 1965 (planned) USSR E. Europe China Total USSR E. Europe China Total

~

Newsprint 400 255 275 930 890 400 580 1,870

other ex fiber-board 2,620 2,125 1,425 6,170 5,740 3,090 2,670 11,500

Total paper ex 3,020 2,380 1,700 7,100 6,630 3,490 3,250 13,370 fiberboard

Paper pulp 2,920 1,630 1,600 6,150 6,300 2,128 3,150 11,578

!I Excluding fiberboard.

Source: FAO, World demand for paper to 1975 •

•

- 56 -

Appendix D: Some price implications of the outlook for supply and demand for pulp and paper.

Chart D-l of this Appendix shows the postl"Tar trends in the real price level of pulp and paper products as a group,!! and some of the major sub-groups. The chart also presents price indicators for disposable containers and building materials,tl\ro markets in which paper competes with other materials. Two features stand out in the chart:

(a) The Overall price level. The chart indicates that the overall real price level of all pulp and paper products rose gradually between 1947 and 1956 but then levelled off and settled into a period of relative stability that still prevailed as of 1960. For the l2-year period as a whole the real price level rose by around 10%.

The rise in the price level during the years to 1956 took place in two stages, the first occurring largely during the Korean War, the second taking place more gradually bet't'1een 1952 and the boom years of 1955 and 1956. Both periods of price rise coincided with periods of rapidly rising pulp and paper consumption. It is notable, however, that while the latter part of the 1957-60 period also witnessed an upward spurt in demand following a temporary check, there was no accompanying rise in the overall price level of the industry (prices of many individual pulp and paper products, of course, fluctuated much more than indicated by the index; in general they were falling in the recession year 1958 and recovering in 1959 or 1960). The failure of the overall price level to rise in the latest period of active demand is no doubt largely due to the fact that while in the previous period the industry had largely failed to anticipate the rise in demand and in order to meet it had been forced to utilize existing capacity to the utmost while at the same time initiating the necessary programs for expanding capacity, by the mid-l950 r s the expansion programs were in high gear throughout the world, so that the substantial rise in demand in 1959 following the recession in 1958 was easily handled by capacity arriving at completion.

(b) Price levels in major sectors. Chart D-l also indicates that the price indicators of the major product groups that are shown tended fairly uniformly to follow the price trend of prices for all products as a whole. At the same time, however, the prices of the product groups do not appear to have moved out of line with the general trend of the price levels in the fields in which they were competing. Thus the rise in the real price of building paper and board largely followed the rise in the price level of building

11 It should be noted that the smoothness of the curves in the chart is due to the fact that the data charted are indexes of rather broad coverage. Individual products covered by the indexes, especially individual grades of woodpulp, fluctuate much more widely. In addition export prices for pulp and paper products may be expected to show greater fluctuations than the domestic paper products that make up the indexes shown in the chart. Nevertheless these indexes are believed to be a fair representation of broad price movements in real terms.

•

•

- 57 -

materials in general, and the rise in the price level of converted paper and board (mostly packaging materials) largely remained in step with the general real price level for disposable containers. It appears, therefore, that the postwar rise in the real price of paper may not have placed it at any disadvantage with respect to competitive materials.

How the pulp and paper industry's real price level may move in the future is difficult to predict, but a brief consideration of the forces that seemed to be acting upon it in the past ~ offer some clues. Available data strongly indicate that the postwar trends in the prices of pulp and paper as a group have largely reflected trends in costs of production. Vlhile profit margins (profits after taxes as percent of sales) in the pulp and paper industry as a whole remained relat.ively stable and even declined somewhat during the postwar period through 1960, available data indicate that between 1950 and 1956 average annual wages per worker in the industry increased up to twice as much as physical output per 't'lOrker.. During this same period the industry's real price level was rising. Since 1956, however, physical output per worker has tended to rise somewhat faster than average annual \'lages per worker paid by the industry, and these develorments have coincided Nith a flattening out of the real price level of all pulp and paper products as a group.

It seem.s significant, moreover ... that the rise in costs occurred during a period Nhen, as mentioned above, demand was pressing on production and the prices of' competing products also appear to have been rising. Under such conditions it must have becn comparatively easy to pass hit~her costs on to the cons'LU11er by increasing prices. In the period since 1956, hot-J'ever, "Hhen pulp and paper producing capacity has been well able to keep pace vdth grm-Jth in demand (and when traditional industries perhaps have been becoming more acutely a"t-J"are than they had been pre;;viously of the dangers they face from competition by SUbstitutable new products), the pulp and paper il1dust~J seenm to have succeeded in stabilizing its costs and the overall level of its selling prices. It is also note1-J'orthy that, the Scandinavian producers, i,Jho redLlced -('heir export prices for pulp and paper in the recession yeaI' 1958, have not. yet, despite some increases in the last two years, raised them quite to the pre-recession levels, and that in recent vJ'eeks price reductions have taken place in the U.S. in a number of paper products in the packaging and bui~ding field.

On the basis of the foregoing there would seem to be good grounds for assl..uning that the pulp and par-e1" industry can exercise sufficient control over its cost position to pursue price policies that assure an expanding market for its products. Over the next five years the prospects are good that capacity "t-rlll be exranded at a rata adequate to insure meeting prospec­tive demand. At t.he same time there should n01'T be ·complete al'lareneSS that .. increases in the real price level of most established industries often terld to expose their markets to encroachment from new products and to hamper the development of ne1'1 markets f or their otm products. Since it 1Vould seem to be in the interest of producers in the PlUp and paper indust~J to avoid raising their prices under these conditions, real prices in the industry raay well tend to stabilize at recent levels during the first half of the 1960 1s.

CHART 0-1

SELECTED REAL PRICE INDEXES OF THE PAPER AND PULP INDUSTRY (1959 -100)

120 I

I PULP, PAPER AND ALLIED· PRODUCTS

100 ~

ItJI'

"" / -90

80 I I I I I I I I I I

120~--~------~----~

PAPERBOARD

90~--~------~----~

120~---~------~----~

DISPOSABLE CONTAINERS

100~--4-------~~--~

120~--~-------~-----~

BUILDING MATERIALS

90~~~-------~-----~

~--~------~----~120

PAPER (Incl. newsprint, excl. paperboard)

~--~------~--~~IOO

~--~~----~----~90

~--~------~----~120

WOOD PULP

~--~------~----~90

~--~------~----~120

CONVERTED PAPER AND BOARD

~--~------~----~IOO

~~~------~----~90

~--~--------~----~120

BUILDING PAPER AND BOARD ~--~------+---~--IOO

1-----4-------#----+--------1 90

80 ,J .. \....-: -'----'-----'-~~__'_-"--_L.._~___I ~tIfL-.L.--J..~---1--L--....JL...--I...--'----L--..L.--L---I 80 1947 1950 1955 1960 1947 1950 1955 1960

IBRD- Economic Stoff

(R) 1874

Table 11

- 58 -Appendix E.

EJ~planation of the construction and composition of 'l'ables 11 and 12 in Chapter l!.

(a) As indicated in footnote 2 of the table, the FAD survey of recent and planned future capacities did not cover one type of board, namely, fiberboard, which accounts for about 6% of 1~orld paper consumption. It is assumed, however, that the data on paper-grade pulp capacity include pulp destined for the making of fiberboard.

(b) As indicated by footnote 5 tl") the table, the FAD survey could not obtain estinlates of planned capacity in North ~nerica beyond that planned for 196~62, nor did the survey indicate the division of North American capacity bet'tveen Canada and the U.,s. Based on data appearing in an authoritative statistical sourceY, however, estimates Here made of the division of North American capacity in 1958 bett-Teen the U.S. and C2l1ada. In addition, since it lVould have been clearly unrealistic to compare Horth .American paper demand in 1965 1'dth expansion plans in that region covering only the period tl1rough 1961/62, it was tentatively assumed that U.S. and Canadian capacity would 8;ro1'T betNeen 1958 and 1965 at the same rate as that currently planned to take place between 1958 and 1962.

Table 12

(a) As already noted vdth regard to T~1J1e 11, the FAD capacity data do not ,include fiberboard. In order to make a comparison possible betvJeen the FAD survey data on capacity and the expected regional demand for paper in 1965" a second set of demand projections 't'J'as made for paper exc!u.C1ing fiberboard, using the same assumptions as to f1l;ture growth as 'tvere used for total paper including fiberboard. The balances shown in Table 12 betvleen paper demand and paper production capacity in the various regions as of 1965, therefore, are based on paper excluding fiberboard. The implicit assumption is that v:rorld fiberboard capacity 't·dll be sufficient to meet fiberboard demand ill 1965. The regional paper production-demand balances for 1957 and 1958 shotm in Table 12 also have been adjusted to exclude fiberboard so that they may be compared 1'n.th the prOjected balances for 1965. Because of tIns adjustment, hOl-leVer, they 't·r.il.l differ frolil the regional be.lances for 1957 and 1958 shOlm in Appendix .. '!i..

"!I n~loodpulp Statistics", U.S. Pulp Froducers Association (Armt1al)~

- 59 -

Appendix E (continued)

(b) The fiberboard problem had to be handled differently" h01'1ever, for purposes of c()mparing FA.Q's pulp capacity data vi th projected demand for pulp. As already indicated it i-JaS assumed that the FAO pulp capacity figures undoubtedly included pulp that is used in null(ing fiberboard. In order to take into account, on the del~land side, the needs for pulp to be used in the fiberboard manufacturing sector, therefore, an estimate vlas made of fiberboard production capacity" by region, in 1965 and this assumed fiberboard capaci ty nas added to the regional. capacities for other paper and board. For this purpose certain ass~mlp­tions 'toTere made 't-Jith regard to regions v1hich produce more, or less" fiberboard than they consume. These assumptions vIere based 011 historical relationships betvreen the various regions' production and net trade balance.

~'Ji th regard to the pulp balances in 1957 and 1958 these have been adjusted to exclude rayon pulp so as to allow comparisons vr.ith the projected balances as of 1965. Hence, as in the case of the paper balances for 1957 and 1958, the adjusted figures ldll be found to be different from those appearing in Append:b~ A.

It nlay further be noted that the regional pulp balances for 1957 and 19,8 do not cancel each other out as they should but rather, in Table 12, '-Tork out to a large net deficit for the world ex Bloc. There are a number of reas~ns for this:

(i) It is known tha,t the net deficits for' Africa and Asia eJ\: Japan include rayon pulp (possibly up to 10,000 - 20,,000 tons) but have not been adjusted for this since the relevant data appears to be incor.lplete;

(ii) Nost trade data cover 't-1oodpulp but not pulp of other material. It has been assumed, therefore, that any r~gionls production of pulp other than of lv-ood is consumed 1'1i thin that region. It is conceivable, hOl-Jever, that both Europe and the U.S., vrhich produce' over 1 million tons and over ~ lnillion tons per year, respectively, of non-vTood pulp eJ\:port s OIile quanti ties of such pulp to other regions. Even modest assumptions on this point could appreciably reduce the l-1ol"ld defici-c; implied in Table 12 for 1957 and 1958;

(iii) As discussed in Appendix B, the Soviet Bloc does not appear to be a net exporter of paper-grade pulp to the rest of the 't-Jorld, on the basis of available data. HO'tIever, if 'tve can make an assump­tion that unrecorded re-exports of dissolving pulp by non-Eloc countries results in greater in~orts of tlds highly desirable material by the Bloc than is shovm by da.ta from the main exporting conntl"ies, then the Bloc could in fact be a small net exporter of paper-grade pulp to -the rest of' the 't-J'orld. Assumptions in line lnth these 3 factors vTould f'Lllly explain the discrepancies i11 the total pulp balances tor 1957 and 1958. The figures for 1965, of course, relate only to paper-grade pulp.

.J

- 60 -

Appendix E (continued)

(c) It shouJLd further be noted that the pulp deficits ShOlV11 in Table 12 are not related to each region's paper cOi1SUinption but rather to the pulp r6qu.irernents of each region I s paper-making in.c1ustry ~ assuming that the industry were operating a.t "nornal" capacity (see footnote 1, Table 11). Thus a region I s pulp deficit as ShO'tID in Table J2 should be added to the samE~ region's paper deficit as also shovm in the table in order to obtain the complete pictUl1 e. The table, therefore, indicates not only ~~lether a region's paper-making facilities are expanding sufficiently to keep up rri th its e::cpected futl..U'e paper needs, but also 'tvhether the region's pulp expansion vull meet the ravl material requirements of its future f3xpanded paper manufacturing industry. The vTorld balances ShOlffl

separatfely for pulp and paper in 1965 aIle also additive.