Free Essay

Pulp Industry Essay

In: Business and Management

Submitted By mattreyc29
Words 999
Pages 4
Matt Collins
2/2/2016
Strategic Management Homework 1
Industry Analysis for Arauco

Pulp itself, as a raw commodity, can be broken down into one of four main variations based on whether or not it is bleached as well as softwood versus hardwood pulp. From here pulp can be used to make a wide variety of paper products. Associated with the production of pulp are Arauco’s other two product lines, forestry and wood products. Forestry products include pulpwood and saw logs while wood products include things like fitches, lumber, and panels. The pulp industry is a highly fragmented one with the largest players all being fully integrated companies that produced pulp and paper, start to finish. Of the approximately 183 million tons of pulp manufactured in 2003, “142 million tons of pulp were used in the production of paper by vertically integrated pulp and paper companies.” (10) Apart from these fully integrated conglomerates there are some other companies that focus on a particular category of the process of production. Additionally there are a handful of local firms that produce paper based on specific needs of their markets. The top five largest producers of market pulp hold 27% of the market with each producer specialized in a specific category of pulp that they dominate. Historically, pulp production has been dominated by the U.S., Canada, Sweden, and Finland (Norscan). Despite this historical dominance, southern hemisphere pulp producers have been on the rise very much recently because of the market growth in hardwood pulp that is easier to extract from tree types in the southern hemisphere. This emergence of hardwood pulp has cut Norscan’s global share of market pulp down to roughly 50%. The current geographic pulp market can be broken down by examining the approximately 183 million tons of pulp produced, of which “North America manufactured 78.2 million tons, followed by Europe, Asia, and South America.” (10)

An examination of the pulp industry through the lens of Porter’s Five Forces reveals a variety of criteria pertaining to the attractiveness of the pulp industry. When examining the bargaining power of suppliers it is important to remember that a large number of the players in the pulp industry and fully integrated. “Some industry insiders felt that maintaining a fully integrated structure allowed for greater negotiation leverage with the main suppliers to the industry, such as chemical providers and paper and pulp machinery manufacturers.” (9) Sense the majority of the players in the pulp industry are these fully integrated companies, that means the majority of suppliers to these companies have fairly weak bargaining power. When analyzing the bargaining power of buyers in the industry it is important to remember that “market pulp” acts like a global commodity in the paper business. Like any commodity, price fluctuates based upon demand. While this demand based pricing holds true, it is also important to remember that the largest potential buyers of pulp all produce their own, so supply for “market pulp” is limited to what the handful of non-fully integrated producers can manage in addition to the excess pulp of fully integrated companies. Based on these two factors, the bargaining power of buyers in the pulp industry is moderate.

The threat of new entrants in the pulp industry is fairly low for a number of reasons. A pulp mill, which is necessary for the production of pulp, can cost around $1 billion and take 3 years to construct. This is a clear indicator of how labor and capital intensive the pulp industry can be. In addition there is also government regulations pertaining to the production of pulp and paper products that act as another barrier to new entrants. On the surface it might seem like the threat of substitutes is very high for the most integral material in making paper because paper products are everywhere around us, and they have been around for a long time. The threat of substitutes isn’t to pulp as much as it is to paper. In an ever increasingly digital era dominated by screens, paper is finding itself on the way out for the first time in history. All of history populations have been growing with paper growing as societies premiere medium, but that is no longer the case and for that reason the threat of substitutes to the pulp industry is high. Rivalry is fairly high in the pulp industry because of how fragmented the market is. There is not a lot of ways to differentiate products, which leads to heavy price competition, which in then turn contributes to the rivalry amongst players in the pulp market. Based on Porter’s Five Forces I don’t believe the pulp industry to be particularly attractive. The market has very high barriers to entry, including extensive capital resource requirements. This coupled with the high threat of substitutes to paper, the product most closely linked with pulp, is enough reason to find the pulp industry unattractive.

The threat of substitutes touched on what I believe to be one of the biggest changes in the pulp industry moving forward. My prediction is that the growth rate in pulp production will decrease moving forward because of a decrease in demand for paper products moving forward. I believe the ever-growing number of screens in the hands of consumers will bring on this decrease in demand for paper. Every new device with a screen is just one more additional outlet for consumers to get the same information they traditionally received through paper product mediums. In order to deal with this negative change I think that Arauco should focus less on their pulp products and more on their forestry and wood products. Paper will always be around to some degree, which means that pulp will also too be around to some degree. So by investing resources that better utilize the excess resources left over by the pulp production process, Arauco will be positioning themselves to capitalize on a niche that has strong long-term growth potential.

Similar Documents

Premium Essay

Deforestation in Indonesia

...Introduction Paper has become a major product which is used widely in the modern society. Not only used obviouslyby the publishing industry, paper is also involved in specific product manufacturing like tissue, cardboard, etc. Pulp wood plays a significant role as a fundamental raw material. Back in the last decade, Indonesia as the largest pulp and paper producer in South-East Asia ran this industry based on its 141.4 million hectares tropical rainforest covering. However, serious deforestation has occurred due to the over-development of the paper and pulp industry. More and more rare species of animals and plants are becoming extinct, not to mention global warming, water loss and soil erosion. This report will discuss the said deforestation and its effects on Indonesian environment and its community, and also focus on analyzing the role of various sectors, namely thepaper and pulp product buyers, environmental non-government organizations and the Indonesian government,within the paper and pulp industry. Asia Paper & Pulp Group(APP) and Asia Pacific Resources International Limited (APRIL) are used as examples of the paper and pulp manufacturers. The report will be concluded by providing recommendations regarding the issue. Indonesia overview Indonesia maintains the highest rate of illegal logging among other countries, up to 60% of timber production. Corruption has been a prevalent issue in Indonesia, and was even worse after the end of the Suharto......

Words: 1898 - Pages: 8

Free Essay

Durian Rinds Paper

...durian seed and durian rinds. From its fibrous characteristic, durian rinds can be a material for paper making. In the paper making process, pulping process is mainly to increase fibre to fibre bonding in the paper. There are two type of pulping process, mechanical pulping process and chemical pulping process. Using chemical pulp to produce paper is more expensive than using mechanical pulp or recovered paper, but it has better strength and brightness properties. This research are concentrated to chemical pulping which using the Soda-Anthraquinone as a pulping chemical. Soda-Anthraquinone pulping is modified chemical process for wood pulp production with sodium hydroxide as the cooking chemical and anthraquinone (AQ) as a pulping additive to decrease the carbohydrate degradation. The advantages of using the soda-Anthraquinone method are not only having high pulp yield, but also resulting in better mechanical strength properties of the yield comparable to Mechanical pulp along with its environment friendly approach as well as its reduced active alkali consumption. The aim of this paper is to study the characteristics of durian rinds soda-Anthraquinone pulp and paper. The study also...

Words: 989 - Pages: 4

Premium Essay

Chile Wood Industry

...higher share in the growing pulp market, increased production of high margin goods, and greater product diversification. Horizontal expansion—currently through the Iata project—presents Araco with the opportunity to become the world’s leading producer of pulp. Although the market for pulp (as a commodity) has experienced some volatility, there are no indications that it is a market in decline; on the contrary, it has sustained growth over the past three years, with pulp shipments increasing by 4%, 4.3%, and 3.9% in 2002, 2003, and 2004, respectively. Araco itself has witnessed growth in demand for its pulp products: sales volumes have increased by more than 25% since 1998, while annual sales revenue growth was $81 million—representing a 13% increase—in 2003. Furthermore, market prices for bleached pulp, which consistently accounts for at least 75% of Araco’s pulp sales, have been on an upward trend since 2001, increasing from $402 to $470 per metric ton. Araco has moreover maintained tight control of its inventories, demonstrating that it has not yet faced pressure to sell its pulp at unfavorable market prices. Given the stability of the pulp market, Araco is likely to benefit substantially by expanding its production capacity for pulp. The Iata project shall allow Araco to keep pace with increasing demand for paper, which is primarily derived from pulp. As greater consumption forces production of paper to increase worldwide, demand for pulp shall inevitably rise as......

Words: 1374 - Pages: 6

Premium Essay

Environmental Impact

... which has led to changes in industry and behaviour at both business and personal levels. With the use of modern technology such as the printing press and the highly mechanised harvesting of wood, disposable paper has become a cheap commodity. This has led to a high level of consumption and waste. With the rise in environmental awareness due to the lobbying by environmental organizations and with increased government regulation there is now a trend towards sustainability in the pulp and paper industry. The production and use of paper has a number of adverse effects on the environment which are known collectively as paper pollution. Pulp mills contribute to air, water and land pollution. Discarded paper is a major component of many landfill sites, accounting for about 35 percent by weight of municipal solid waste (before recycling).[1] Even paper recycling can be a source of pollution due to the sludge produced during de-inking. According to a Canadian citizens organization, "People need paper products and we need sustainable, environmentally safe production." The amount of paper and paper products is enormous, so the environmental impact is also very significant. It has been estimated that by 2020 paper mills will produce almost 500,000,000 tons of paper and paperboard per year, so great efforts are needed to ensure that the environment is protected during the production, use and recycling/disposal of this enormous volume of material. Pulp and paper is the third......

Words: 317 - Pages: 2

Premium Essay

Case Study - International Paper

...Case Study – International Paper Company I. Company Profile and Analyses of Industry International Paper Company (IP) is one of the world’s largest manufacturers of paper and paper products. Their products include a wide variety of paper products, consumer packaging materials, industrial packaging materials, and pulp products. In addition, IP collects and recycles recovered paper. History IP began in 1898 as a merger of 17 pulp and paper mills from Massachusetts to New York. IP led the newsprint industry until 1913, when trade regulations revised to promote Canadian imports and later, in 1921, labor conflicts within IP contributed to a decline in IP’s market share. However, IP rallied by creating a Canadian subsidiary, expanding into the South by acquiring and building new mills, consolidating its northern operations, and diversifying its product line from primarily newsprint, to book and bond products, and later, corrugated containers. This diversification aided IP in surviving the Great Depression, and continued through the 1930’s. IP continued to reap profits and expand the company through the 50’s and 60’s, into North American and overseas, eventually expanding into places such as French West Indies, Mexico, and France. The 1970’s found IP divesting itself of several plants and mills, and in 1976, J. Stanford Smith, facilitated a major company reorganization revised the geographic area divisions into business units dedicated to a specific function or product. Over......

Words: 1499 - Pages: 6

Premium Essay

Case Analysis-Arauco

...January 2004. With these expansions, Arauco had become one of the world’s premier forestry enterprises in terms of plantation areas and yields by 2004. The company had three main product segments which include pulp products like bleached and unbleached Kraft pulp; forestry products like pulpwood; and wood products like lumber and remanufactured wood products. In 2004, the company wanted to invest more to get more development. The company was facing alternatives: one was forward integration moving into paper manufacturing; the other one was horizontal expansion investing US $1 billion to construct a new state-of-the-art chemical pulp plant. 2. Situation According to the case, we can see that the competition in the pulp industry is strong. First, the competition of existing competitors in market pulp was strong. From the case we can get that most of the large companies were involved in backward integration to produce the pulp for their paper themselves. Most major companies had their own forests, pulp mill, paper manufacturing facilities and even their own distributions. These vertically integrated pulp and paper companies produced 142 million tons of pulp out of the 183 million tons produced worldwide. There were some smaller local paper firms that still purchased the pulp from suppliers like Arauco based on their needs. For Arauco, it can only...

Words: 3446 - Pages: 14

Premium Essay

American Chemical Corporatiion

...idle. Company The Dixon Corporation is a specialty chemicals company that supplies primarily to the paper and pulp industry. The company’s products are mainly used by paper companies as a bleaching agent for pulp. Dixon’s principal plant was located in Calhoun, Georgia, and mostly supplied paper and pulp companies in the southeastern United States. The company achieved strong growth with a compounded annual growth sales of 17% for the past 5 years (1974-1979) and improved net margins to 9.5% by 1979 as the sodium chlorate market remained resilient despite the difficult economic situation. Customers The primary customers of the sodium chlorate producers are the paper and pulp industry, which accounts for approximately 85% of total production. As such, growth in the markets will essentially mirror growth in the pulp & paper industry. The 1970s was a turbulent period for the paper and pulp industry, marked by greatly intensified competition, periods of overcapacity (especially in 1976), a deep recession in mid-decade, rapidly rising inflation throughout the industrial world and a decline in the competitiveness of the U.S. economy as a whole. Despite this, the paper and pulp industry remained resilient with growth expected to pick-up by the 1980s as the U.S. economy recovers and the prospect for substantial future growth in the worldwide use of pulp and paper. As such, the outlook for the sodium...

Words: 2157 - Pages: 9

Free Essay

Proc 5820 Tours a and B

...term changes in capacity demand). Tour A: International Paper, Androscoggin Mill’s central ordering department receives all orders and places them in open slots in their weekly production cycles. The manager of operations control must take into consideration how many machines are available, which ones run what process, and how long each process runs. The production schedule is very detailed but remains flexible to allow for changes. Demand for paper products is cyclical in nature and fluctuates with the economy. A linear program ran each quarter to optimize the schedule. Similar size orders were grouped together to eliminate as much waste as possible. Trucks and railcars also had to be scheduled for shipments. . Tour B: Norcen Industries key production considerations would be scheduling. As a “job shop” they create a wide variety of products to fulfil customer orders. The production manager must make sure the workers were assigned and understood the correct tasks. Assigning the best operator to perform certain tasks help keep costs down and machines running efficiently. On-time deliveries are important to receive repeat orders. Small jobs were given preference to expedite billing. As drops in demand created fewer orders the foreman ran into bottleneck issues. 2. Identify potential bottlenecks (use process flow diagram in text) and discuss possible methods of breaking them. Tour A: International Paper, Androscoggin Mill – Some of the potential bottlenecks......

Words: 1629 - Pages: 7

Premium Essay

Arauco Case Study

...Study Question 1 - Do you think it is a good idea for Arauco to build the Nueva Aldea project? In this question we will be using the DCF technique in order to evaluate the project feasibility: Project name: Nueva Aldea Construction time: 3-4 years, we chose a 4 year construction time because we assumed it will take 3 years of direct constructing and a 1 year for extra delays and administrative procedures. We will also assume that the cost of the construction will be divided evenly between the years. Mill life time: 30-40 years, for the sake of this question we will assume a 35 years lifetime. (P.1 L.10) Expected sales: 350$ million per year at full capacity production. (P.1 L.10) Production Capacity: 700,000 tons of pulp. (P.1 L.9) MES of new pulp mill: 665,000. As of 2004 the minimum efficient scale was 95% of maximum mill capacity. (P.12 L.9) Year of producing | 1 (80% of MES) | 2 (90% of MES) | 3 (100% of MES) | 4-35 (100% of MES) | Capacity usage | 532,000 | 598,500 | 665,000 | 665,000 | (P.12 L.7-8) Cost of production: 197$ per ton. (Exhibit 6) Rate of return: 11%.Chile's expected market return is an indication to the company's project return. (P.12 line 10 from bottom) Depreciation: 44$ per ton. (Exhibit 6) Transportation: 38$ per ton. (Exhibit 6) Export: 85% calculated as average between years. (Exhibit 5) Sunk cost: 150$ million. The first phase of the project is already invested and cannot be returned, thus it is not calculated in the DCF. (P.1......

Words: 2605 - Pages: 11

Premium Essay

Horizontal Expansion Versus Vertical Integration

...of market pulp is the better decision when weighing it against the prospect of forward integrating into paper production. After doing an initial calculation, the net present value of the Valdivia project is roughly $3.7 billion (see Exhibit A), which yields a gain of almost $2.6 billion. Below are the key points we’ve identified to support this figure. Existing Competencies Within Arauco’s Contracted Workforce Because Arauco already has over 10,000 employees aiding in forestry and transportation operations under roughly 300 subcontracts, along with a workforce of independent workers operating all of Arauco’s sawmills, it becomes clear that several relationships are already being managed in order to ensure efficiency and effectiveness. By adding another workforce entirely dedicated to the production of paper, Arauco is taking on even more workers that are performing a series of operations that Arauco is not familiar with. Because of this, enforcement costs will be incurred to simply oversee the workforce’s numbers. Additionally, upper management will either need to be trained in a whole new set of competencies, or new employees must be taken on to optimize production performance. Additionally, to take full advantage of the potential sharing activities, will require an unknown amount of resources to coordinate interactions between the various functions of the company. If phase two of the Nueva Aldea project were to go through, Arauco would increase its pulp capacity......

Words: 1032 - Pages: 5

Free Essay

Temple-Inland’s Analysis of Remote and Industry Environments

...Remote and Industry Environments In order to support strategic planning and gain a thorough understanding of Temple-Inland’s remote, industry and operating environments, various analytical frameworks can be applied as the second step of the competitive research and analysis processes.  The goal of this research is to gain information about the packaging industry and it’s external factors such as main competitors and external stakeholders.  First as an introduction, Temple-Inland’s industry is defined and explained in regards to it’s remote environment, the paper packaging industry.   The industry will be explained in relation to time frame and geographic scope of Temple-Inland’s operations. Next, external issues are identified that affect the paper packing industry and Temple-Inland itself. In order to identify these external issues, a STEEP analysis has been used to illustrate the most relevant remote factors. 12 factors will be examined and each fall under the category of socio-cultural factors, technology, economy, ecology and political regulatory forces.  Each one of these factors is assessed and then appropriately placed into an Issues Priority Matrix based on its impact on the company and significance of the factor in the industry.  Subsequently, Porter’s five forces will be used as another analytical tool that identifies the structural characteristics that determine Temple-Inland’s competitiveness and profitability in the packaging industry.  The......

Words: 7268 - Pages: 30

Premium Essay

Double a Paper

...Double A Public Company Limited The company background The company was founded in 1991. It is a leading manufacturer and distributor of pulp and paper in Thailand. There are currently 2 pulp mills to produce pulp for 58000 and 3 paper mills with 600000 tons per year. Over the years, the company has tried to come up with different ways to revolutionize the paper industry by introducing farmed trees concept to be more friendly to the environment. Double A has come out with tree which can be harvested after only 3-4 years in stead of 50 years that the traditional method. The trees are grown on the empty spaces between the rice paddies together with other cash crops. These are Double A’s raw material in producing paper which promotes sustainable development and cause no harm to the trees in the natural forest. These trees are cared by more than 1.5 millions Thai farmers. This offers jobs and income for the local Thai families. Company differentiates its product from any other paper in the market by focusing on its 7 benefits to buy Double A’s product which are 1.Good runability 2.Two-sided copying 3.Printing sharpness 4.Bright appearance 5.Prolong performance of copier 6.Time saving 7.Longer storage period for documents Most of the products are sold internationally with the proportion of 35% nationally and 65% internationally. Main countries that Double A export to are Asian countries which are Bangladesh, Cambodia, China, Hong kong, Indonesia, Korea,......

Words: 1566 - Pages: 7

Free Essay

Guidlines

...Asset Protection Services LLC PULP AND PAPER MANUFACTURING INTRODUCTION The modern pulp and paper mill is a complex, high-valued facility. To operate profitably under today’s environmental constraints, a mill must efficiently integrate steam and power demands and chemical recovery systems with the pulp and paper processes. Computer control of all mill processes is the norm. Each step in papermaking — from raw material storage, through stock preparation and papermaking, to finished roll storage — presents special loss prevention challenges. Storage areas pose severe fire loss potentials. Fires, explosions and machinery breakdowns can seriously damage critical process equipment. Pollution control equipment can also cause large losses. Associated with these high property damage potentials are even higher business interruption potentials. In a full process Kraft mill, loss of the black liquor recovery boiler (BLRB) can result in extensive downtime. Continuous digesters and Yankee dryers can also present very large business interruption potentials. This GAPS Guideline describes “full process” pulp and paper mills. Full process mills include pulp, paper and finishing mills, and sometimes converting mills. Figure 1 shows a simplified process flow diagram for a full process mill. Many of the processes described in this section also apply to mills that are not full process. PROCESSES AND HAZARDS Woodyard Operations and Storage Pulp mills commonly maintain......

Words: 8546 - Pages: 35

Premium Essay

Essay

...An essay on pulp fiction Man's greatest achievement? Perhaps not, but can you afford not to read on when I am about to tell you about pulp fiction? There are many factors which influenced the development of pulp fiction. While it is becoming a hot topic for debate, several of todays most brilliant minds seem incapable of recognising its increasing relevance to understanding future generations. Inevitably pulp fiction is often misunderstood by the aristocracy, obviously. Complex though it is I shall now attempt to provide an exaustive report on pulp fiction and its numerous 'industries'. Social Factors As Reflected in classical mythology society is complicated. When J H Darcy said 'fevour will spread' [1] she must have been referning to pulp fiction. While deviating from the norm will always cause unrest amongst ones peers, pulp fiction irons out misconceptions from our consciousness. Some analysts have been tempted to disregard pulp fiction. I haven’t. It breaks the mould, shattering man's misunderstanding of man. Economic Factors Economics has been defined as 'I'll scratch your back if you scratch mine.' To my learned ear that sounds like two people with itchy backs. We will study the Custard-Not-Mustard model, a classic economic system of analysis. Interest pulp fiction Indisputably there is a link. How can this be explained? Even a child could work out that interest will continue to follow pulp fiction for the foreseeable future. Strong fluctuations...

Words: 453 - Pages: 2

Free Essay

Hiljbaefl

...البحث الآمن ▼ حوالي ٣٤٬٢٠٠ من النتائج (عدد الثواني: 0,48) نتائج البحث Handbook of Automated Essay Evaluation: Current ... - صفحة 125 https://books.google.com.sa/books?isbn... - ترجم هذه الصفحة Mark D. Shermis, ‏Jill Burstein - 2013 - ‏معاينة - ‏المزيد من الإصدارات Current Applications and New Directions Mark D. Shermis, Jill Burstein. models resulting from machine learning must be effective at reproducing human assessment, which requires weighing the complexity and thoroughness of a ... Machine Learning Algorithms for Problem Solving in ... - صفحة 136 https://books.google.com.sa/books?isbn... - ترجم هذه الصفحة Kulkarni, Siddhivinayak - 2012 - ‏معاينة - ‏المزيد من الإصدارات It consists of essays written by English language students who are studying English in their third or fourth year at university. The corpus currently has over 3 million words from students from 16 different native languages. The target for each ... Psychology of Learning and Motivation: Advances in ... - صفحة 58 https://books.google.com.sa/books?isbn... - ترجم هذه الصفحة Brian H. Ross - 2002 - ‏معاينة - ‏المزيد من الإصدارات The larger the number and variety of essay grades there were to mimic, the better the human graders agreed with each ... for machine-learning techniques to outperform humans, for example, because they can compare every essay to every ... Artificial Intelligence in Education: Building Technology ... - صفحة 545 ......

Words: 745 - Pages: 3