In 1992, The Economist declared Japan’s pulp and paper industry dead. During the economic boom in the 1980s, the pulp and paper industry had expanded rapidly. Massive new paper capacity came on stream just as the economy collapsed in the early 1990s. Oji Paper attempted to buy its way out of crisis, buying Kanzaki Paper and then Honshu Paper.
It seems the industry is approaching another crisis. Demand for paper products in Japan stagnant, with an increase of only 1-2% each year since 2000. Three new coated paper machines are due to start up in 2007. Oji Paper is once again on a buying spree, attempting a hostile takeover of Hokuetsu.
“A merger of Oji and Hokuetsu would be the best outcome of this takeover battle”, Katsuhiko Ishibashi, analyst at Deutsche Bank in Japan told the Financial Times. “It would result in a rationalisation of capacity and improve the demand-supply balance in the industry,” he said. “For Oji, the biggest benefit would be gaining Hokuetsu’s Niigata plant.”
A merger of Oji and Hokuetsu would have created the world’s fifth-biggest paper company, with annual sales of US$10.9 billion. But Mitsubishi and Nippon stepped in buying up 24% and 10% of shares in Hokuetsu respectively, effectively preventing Oji’s takeover bid.
Japan imports between 7 and 15% of its paper. When prices in Japan increase, cheap imports from China, Korea and North America also increase. The availability of cheap imports means that Japanes paper producers cannot put up prices without risking losing customers.
Analysts consider it unlikely that one of the big international companies (like International Paper or Stora Enso) might buy up Oji Paper or Nippon. For one thing, more than 90% of revenue comes from domestic sales. “Japan is still very much a closed market,” Motoki Yanase, analyst at Moody’s in Tokyo told the Financial Times. “For the leading foreign paper manufacturers, Japan is not an attractive market because it’s not growing – other markets are far more attractive.”
 Mariko Sanchanta (2005) “Japan’s frail paper industry studies options for alliances”, Financial Times, 8 August 2006.