Nov 24, 2023
On November 14, 2023, Valmet Investor Relations arranged a site visit to Valmet’s factory in Jiading, Shanghai, offering investors and analysts an opportunity to gain in-depth understanding of the company's operations in China. Hosted by Xiangdong Zhu, Area President, China, and Ilkka Jauhiainen, Vice President, China Operations, Paper Business Line, the event showcased Valmet's successful journey in the Chinese market.
Celebrating its 90th anniversary in China, Valmet has a rich history in the country dating back to its first paper machine delivery in 1933. The first joint-venture in China opened in 1989. The Shanghai Jiading production site was established in 2006, and today it serves as the headquarters for Valmet's China area. Operating across all five business lines, Valmet employs 2,350 people in China, with seven production units, five service centers, two technology centers, and a Performance Center.
Over the past twelve months (Oct 2022 to Sep 2023), Valmet China achieved a net sales figure of EUR 694 million, constituting 12% of Valmet's total revenue. Process Technologies accounted for 58%, Services 24% and Automation 18% of net sales. The orders received of Valmet China during this period reached EUR 715 million, nearly tripling from 2013. The year 2022 set a record with start-ups of 14 tissue production lines, five board and paper production lines, and four pulp lines in China.
Economic landscape and industry dynamics in China
Against the backdrop of China's robust economic growth, Valmet is strategically positioned to capitalize on the nation's initiatives in innovation, digitalization, green transition, and circular economy. However, there are potential risks to China’s economic development, such as global recession, geopolitical tensions, housing market crisis, unemployment, and a declining and aging population.
China stands as the leading region in global paper and board production, commanding a 28% share, making it bigger than whole Europe. With an estimated total production of 140 million tonnes of board and paper in 2025, the production is expected to grow at a CAGR of 2.6% until 2035. The increasing demand for board and paper is driven by packaging needs, single-use plastic replacement, and the e-commerce boom. Tissue consumption is growing in China too, and there is a growing demand for higher tissue quality.
The pulp consumption in China has increased by 21% since 2013, reaching 113 million tonnes in 2022. As the demand for board, paper and tissue rises, there is a need for new pulp capacity to address the fiber shortage. Furthermore, the shift towards service outsourcing in China presents growth opportunities for Valmet’s Services business. Sustainability and efficiency are key drivers for both new technology investment and service demand. Small, polluting production lines are replaced with efficient and environmentally friendly new lines.
Major players in the Chinese pulp and paper industry are all Chinese companies. The top five producers have 40% of the paper and board capacity in China. With new capacity additions, industry consolidation is expected to accelerate.
Valmet's market position and strategic approach
Valmet has established a leading market position in China, with the top 25 pulp and paper producers all being Valmet customers. In the absence of noteworthy Chinese peers, Valmet is facing competition primarily from other global players like Andritz and Voith. In board and paper production technology, Valmet claims a 50% market share, while in pulp equipment and automation systems, it holds 35% and 45% market shares, respectively. The service market is fragmented and sees Valmet capturing approximately 10%.
Valmet's strategy in China is clear and ambitious. In Process Technologies, the focus is on enhancing cost competitiveness for mid-size machines and projects, promoting new technology, and exploring new business opportunities e.g., in Energy. In Services, the company aims to expand its service center network, fostering local capability and competence. Automation Systems targets increasing market share in marine and renewable energy industries while aiming to replace competitors within the pulp and paper industry. In Flow Control, the emphasis is to develop new business on renewable energy and mining.
Site tour highlights
Xiangdong’s presentation was followed by a tour of the Jiading production facilities. The plant has an area of 150,000 m2 and there are 800 employees. 70% of them work in the Paper business line, while the rest represent Services, Pulp and Energy, Automation, and support functions. Ilkka Jauhiainen hosted the tour which showcased Valmet Jiading’s impressive infrastructure. Manufacturing facilities cover foundry, welding, machining, assembly, cleaning, and painting. Notably, over 50% of components are outsourced and only the most demanding components produced in-house. During the tour the visitors saw e.g. grinders, presses and a preassembled board machine section. In the foundry, they also got to witness casting in action. According to Ilkka, having an own foundry increases production flexibility and Valmet’s competitive advantage. Ilkka also showed data on how the site has made great progress in productivity over the years. Valmet is investing in China for continuous productivity improvement.
Valmet's strong presence, coupled with its strategic vision and investments in China, positions the company for sustained success in this dynamic market. As China's economy evolves and the pulp and paper industry continues to expand, Valmet stands ready to play a pivotal role in shaping the future of the sector.