China import brakes hit Turkish producers

Turkish paper producers face tough times as China, one of the world's top paper consumers, put brakes on importing scrap paper from Europe due to the crisis.

With the halt of exports to China, European scrap paper sellers have directed their stocks to the nearest market, which is Turkey. European sellers have also reduced the per ton price of paper from 155 euros to 40 euros.

The scrap paper market, which used to completely rely on domestic products, is facing major trouble due to the European born scrap paper's entrance to the market.

It is impossible to compete with the scrap papers inflow, said Erdal Sükan, chairman of the Turkish Pulp and Paper Industry Foundation. "We are under the threat of import," he said. While the industrialists that use scrap paper in production foresee a 30 percent contraction, with expectations of lay offs, production suspensions began to surface."

It is not possible to compete with the paper from Europe, said Sükan. "The scrap paper, which we buy for YTL 240, is 40 euros in Europe at present. Our production cost rises up to YTL 640. Europe-origin paper costs YTL 230-240 in Turkey," he said. "The great price gap has made it impossible to compete with imported products. We work with stocks from seven months ago. Even if prices decline in Europe, it is not possible for us to benefit from it as we have products of our stocks that we bought for YTL 240."

Three resources
In Turkey, there are three main resources for paper production. The first group consists of forest products. Only OYKA, which operates SEKA Çaycuma facility, produces clupak, or paper pulp, via direct cellulose production using forest products. The second raw material used in production depends on imported cellulose. The third raw material is scrap paper.

The scrap paper, collected by street collectors in Turkey, is used for the production of corrugated cardboard and packaging paper used in the import, export and retail sectors. Out of 1.8 million tons of scrap paper, 1.6 million tons come from domestic resources.

European producers introduce sales at reduced prices and make efforts to send paper to Turkey each December in an attempt to reduce stocks, Sükan noted. "We have struggled much with the issue and researched whether we can take legal action against it. However, we could not solve the problem due to bureaucratic reasons."

"The current import pressure is, however, very different, and derives from the crisis," he added. The burden on industrialists is not limited to import pressure. The market stagnation also is also causing a fierce competition between the companies, Sükan said. "The market is almost in stagnation. Everyone is trying to sell products at hand. Prices are necessarily reduced."

"At present, many facilities have halted production. Those that cannot risk halting production are reducing their capacity, laying off employees or cutting the wages of employees. As Marmara Kağıt, we may also suspend production during the Feast of Sacrifice [a religious festival celebrated by Muslims]. Moreover, we have reduced the wages of all staff by half."

The sector, which employs 10,000 people, is likely to narrow 30 percent by the end of the year, said Sükan.

Positive aspects
However, some others chose not to draw such a somber outlook. The drop in scrap paper prices in Europe may actually benefit some firms, said Ahmet Taş?ı, deputy director general of Kahramanmaraş Paper. "Some producers started to purchase raw material for lower prices due to the decline in European prices. Actually, this helped many firms amid the crisis climate," he said. "However, the situation proved to be the opposite for the firms that have stocks. I guess import pressure will be felt more in the middle and the long run."