Highlights of the site visit to Shanghai

Dec 23, 2014

The fourth Valmet site visit was arranged on December 10, 2014. The destination of the visit was Valmet Jiading site in Shanghai, China. The site visit was a part of Nordic Engineering Roadshow together with Konecranes. Valmet operations in China was presented by Aki Niemi, Area President, China.

Valmet’s first deliveries to China took place already in the 1930's. Nowadays Valmet has four production factories and three services centers as well as a strong installed base in China. In 2013 China was the largest country for Valmet in terms of net sales and third largest in terms of orders received.

Regardless of its strong position, orders received and net sales in China have decreased from its highest level just after the financial crisis. During the crisis, China reflated its economy strongly, which led to an investing boom and overcapacity in many industries including paper, board and tissue industry. In 2013 Valmet net sales in China had decreased by 43 percent compared to the year 2010, and orders received as much as 63 percent.

Demand has changed from large, tailor-made models to mid-sized equipment, key components and rebuilds. Economic growth in China has slowed down which has affected for example board consumption. The growing role of digital media reduces the consumption of printing and writing papers.

However, there are already signs of market recovery and in the long term the market is expected to grow moderately. Valmet orders received in China have increased by 24 percent during the first three quarters of 2014 compared to 2013. A new era of slower growth is beginning.

Urbanization, increasing standard of living, economic recovery and recovery of export have a positive effect especially on consumption of tissue and board, which are forecasted to grow. This offers clear growth potential, as for example in China tissue is used approximately 4 kilos per person whereas in North America the corresponding amount is 24 kilos per person. Even though overcapacity still has an impact on the market in the short term, customers has started to plan investments in tissue and board machines as well as in fiber lines. According to RISI, the overcapacity will unwind by the year 2015.

Valmet has a strong position in project business in China. Valmet is a market leader in pulp with a market share of 37 percent. In paper, Valmet share is 30 percent and it is a market leader in board and the second in tissue. Along with the market change the competition has become tougher and the importance of cost competitiveness and local presence will grow. In China, Valmet’s largest competitor in pulp is Andritz, in paper and board Voith and Andritz, and in tissue Andritz and A Celli. The role of local competitors is also significant.

The services business growth is supported especially by amount of new capacity that has increased significantly during the last 15 years. During 2006-2014 approximately 80 percent of new board and paper machine investments globally were made in China. Net sales of Valmet service business in China has increased 57 percent in four years starting from 2010. For example, agreement based business has started to develop in the past two years.

The service culture has only started to develop in China and the service market is expected to grow in the future. Valmet market share of the services target market in China is currently approximately 8 percent, Andritz and Voith having the equivalent shares. The competition in service market is more fragmented than in project business and the number of competitors is larger.

Profitability improvement is one of the key targets for Valmet also in China. In China, profitability improvement is supported by competitive cost of raw materials and other procurement. For example modular manufacturing and implementation of Lean help Valmet to reach its profitability target in China.