International Paper Says Pulp Demand to Grow, Fueled by China

International Paper Co., the largest U.S. maker of cardboard shipping boxes, expects a “modest” increase in pulp demand this year as Chinese orders make up for declines in most other markets, Chief Executive Officer John Faraci said.

“Most of the growth is being driven by demand in China,” Faraci said in an interview in Moscow today. The growth will be in the “single digit” percentage range, he said.

Exports to China from International Paper’s joint venture with Russia’s Ilim Group have bounced back after a first quarter that was “the worst for our business,” Faraci said. The joint company gets about 60 percent of its sales from China. Pulp prices remain at about two thirds of the last year’s levels, while stockpiles are falling from their peak in the first quarter, he said.

“The challenge for the pulp industry for the next five years is how to manage supply and demand so that there aren’t imbalances,” that lead to price declines, he said.

Faraci has curtailed International Paper’s production to help support prices after demand for office paper and cardboard plunged. Prices have fallen faster than costs, he said.

International Paper remains focused on maintaining liquidity rather than starting new projects, Faraci said.

“It’s still time to be cautious over how quickly global economies are going to improve,” he said. “So you don’t want to be out adding capacity that you don’t need.”

International Paper’s investment in Russian pulp-and-paper producer Ilim creates a “quite promising” platform for the future, though this year will be “challenging” for the venture, he said.

International Paper paid $620 million for half of Switzerland-based parent company Ilim Holding SA in 2007 to create the biggest joint venture in Russia’s forestry industry. The company will seek to expand in emerging markets, he said.

“Russia, India, China and Brazil are all growing markets for the products that we make,” Faraci said.