Carter Holt looking for ways to boost Chinese venture

By PAM GRAHAM

Carter Holt Harvey has begun to explore ways of boosting the performance of the two wood panel plants it bought in China last month.

The New Zealand forestry giant first wants to bed down the US$134 million ($205 million) purchase of 85 per cent of the Chinese company Plantation Timber Products before any more money is spent in a market many investors are sceptical of.

However, it sees opportunities to improve production and product grades at the plants and use the network of eight sales offices and 700 retail outlets for more products.

"When we look where we go forward, we can obviously look at the manufacturing growth but we also have the opportunity to consider bringing other products through the distribution network," said Ian Unwin, Carter Holt's wood products chief.

He said the resource and the markets existed to take any increase in capacity at the plants.

"It is too early to say we have plans for capacity expansion," he said. But a strategic plan being worked on would address this issue.

The plants take Carter's total medium-density fibreboard output to around one million tonnes a year, up from 600,000 tonnes.

Chief executive Peter Springford leaves for China this week. The group spent 15 months looking for an investment in China before settling on Plantation Timber Products (PTP).

The company was privately owned and developed by local businessman Laurence Moh and US entrepreneur Daniel Spitzer. Its two plants in Leshan and Shishou in central China were built in the past seven years using German and Italian equipment Carter Holt is familiar with.

Moh died a year ago and his son wanted to focus on the family's furniture business. A sale of shares to the public was an option but Carter Holt got an exclusive right to negotiate.

Chief executive Deane Lin, who has marketing experience with Coca-Cola and Foster's, is staying on, and Carter Holt is sending Ian Myers to China.

Myers has been running mills for the New Zealand company in Australia.

Unwin says a Government clampdown on overloading of trucks will increase logistics costs. Another problem is that the power gets turned off arbitrarily by the Government.

But the wood supply was secure and that was the biggest issue for wood processors in China.

The mills chew up poplar trees grown by the hundreds of thousands of small farmers along the Yangtze River.

The Government supports the plantings because they shore up river banks and provide a cash crop to small farmers.

The trees are harvested every six to seven years.

The mills buy the wood from forestry bureaus, which are the other shareholder in the business.

Unwin said PTP had 20-year wood supply agreements. They have a variable pricing formula with an inflation component, but in real terms the price should remain flat.

Another source of growth will be upgrading the quality of the medium-density fibre board (MDF) produced. Thin MDF, on average 6mm thick, sells for US$330 a cubic metre, compared with 18mm thick commodity grade board at US$220.

The two lines at Shishou are already being upgraded to produce better quality board.

The Leshan plant has one MDF line and also makes flooring.

Spitzer is staying on for a while as a consultant and Springford and Unwin will be in China this week with him to meet key people.

Springford worked for five years in Hong Kong for Carter Holt's parent, International Paper, and is already familiar with the Chinese market.

The Chinese business has a tax rate of 15 per cent.

It was built up with the help of US$150 million of financing from the International Finance Corp and is in an area favoured by China's "Go West" policy, which aims to improve regional economies.

If the company's Chinese language website is anything to go by, the Chinese are welcoming foreign owners.

It has a logo of its new New Zealand owner then two fingers meet in a glow of light.

Buying Chinese

1993: Plantation Timber Products set up.

1997: Leshan plant starts production.

1999: Shishou plant in Hubei province produces its first board.

2001: Shishou plant starts second MDF line.

Employees across two sites: 1700.

Capacity: 350,000 cubic metres.