“India and China are still question marks”; International Paper CEO Unsure of Value of Further China Expansion

International Paper CEO Unsure of Value of Further China Expansion

John V. Faraci Says Co Facing Extreme Competition

LAURA STEVENS, CAMERON MCWHIRTER and DENNIS K. BERMAN

Nov. 22, 2013 3:40 p.m. ET

International Paper Co. IP +0.39% is unsure of the value of further expansion into China due to extreme competition in the market, Chairman and CEO John V. Faraci said in an interview with The Wall Street Journal Friday. The Memphis, Tenn.-based company is now the No. 2 supplier by volume and revenue of coated paperboard in China after entering the market with a joint venture in 2006 and again with a $200 million acquisition in 2010.But the paper products market there already faces a problem with overcapacity, and it is unclear whether it makes sense to try to make a further push there for growth, Mr. Faraci said.

“The jury is still out on whether we want to be bigger in China,” Mr. Faraci said. “The question is whether we can make money there.”

The U.S. paper industry has been looking for ways to diversify and expand its business model to counteract sinking North American demand for traditional white paper-the stuff of copy machines and printers-in the Internet age. Industry capacity for copy paper has fallen for the past five years in North America.

Mr. Faraci has held the job since 2003, and has overseen the plant closures and a shrinking workforce. In 2000, the company had about 113,000 workers and today it has about 70,000, Mr. Faraci said, while maintaining the same revenue.

Most recently, IP said in September it would close its biggest paper mill, which is located in Courtland, Ala., displacing 1,100 workers. Closing that plant will slash the company’s papermaking capacity by about one-third, or 950,000 tons a year.

To continue growth, the company’s chief strategy has been expanding into emerging markets like China, Brazil, Russia and, more recently, India.

China contributed $1.6 billion in net sales to the world’s largest producer of paper products’ bottom line in 2012, compared with $22.1 billion in North America. The company is most active in Shandong province.

International Paper will also decide in the next five years if its Indian business, which made about $200 million in revenues in 2012, will receive more investment. Companies there face time-consuming hurdles in getting government approvals, and the supply chains there are truncated, he said, and the infrastructure is still problematic for manufacturers.

“The lack of infrastructure means things don’t move very far,” Mr. Faraci said.

The company expects continued growth in the market for paper plates and cups in the U.S. and Europe, as more environmentally conscious consumers switch from plastic and Styrofoam. The company also plans to grow more in Latin America, and says it is seeing success with a Russian joint venture that is allowing it to harvest trees in Siberia, convert it to pulp, and then ship that in bulk to China.

But for now, it remains to be seen whether Asia will merit further investments, Mr. Faraci said.

“India and China are still question marks,” he added.