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Elaborating on these points, Pöyry noted that the Australian pulp and paper market is now globalised
and that international companies, such as Norske Skog, SCA and Nippon Paper, have entered the
Australian industry, while Australian manufacturers have become international companies. These
companies can choose whether to invest in Australia or offshore and, as a result, local investment
projects need to compete for funds with other company projects around the world. Pöyry concluded
that the Australian industry needs to be internationally competitive to survive.

Compared with its competitors in the Asia–Pacific region, Australia has a mature and stable economy
with high per capita income but a small domestic market. This is not well suited to building large,
world‑scale mills, unless those mills can be competitive in export markets. Overall, Australian pulp and
paper manufacturing assets are now mostly relatively small and old, and this has a significant impact
on their competitiveness. Improving competitiveness in Australia will require the decommissioning of
small, old machines and their replacement with large, new machines.

Pöyry considered that Australia’s expanding fibre resource gives the nation’s pulp and paper industry
a significant advantage over competitors in the Asia–Pacific region. Northern Asia is a fibre‑deficient
area: the region’s major paper‑producing countries, such as China, Japan and Korea, all have to import
large proportions of their fibre requirements in the form of wood, pulp or recovered paper.

The large volumes of hardwood pulpwood becoming available from Tasmania, the Green Triangle
and south‑west Western Australia could be processed in Australia to take advantage of the growing
demand for pulp in Asia. Alternatively, it could be further processed to printing and writing paper
grades in Australia, potentially displacing some of the significant Australian imports of those grades.
This would require large investment in new manufacturing facilities.

Pöyry noted that Australia has excess volumes of softwood available, but that this resource (along
with much of the new hardwood resource) is not within an economic haulage distance of most of
Australia’s large pulp mills. This may result in softwood fibre being exported as woodchip, with the
value‑added opportunity lost to Australia.

Australian manufacturers also benefit from Australia’s well‑developed power and gas infrastructure
and generally lower unit costs of energy. However, Australia’s Carbon Pollution Reduction Scheme and
competing countries’ responses to climate change have the potential to reduce the relative energy
cost advantage.

The large volume of goods shipped to Australia from China gives Australian paper manufacturers
the advantage of low backloading rates to ship product to China. Australia has high domestic freight
costs compared to international shipping rates, so shipping costs for competitors in the Asia–Pacific
region delivering to major Australian markets can be the same or lower than for some Australian mills
supplying those markets.

One of Australia’s major relative cost disadvantages is its high personnel costs, although this is partly
offset by the relatively low‑cost input of labour to total production costs and the high underlying
education, skills and knowledge of the industry.

The smaller scale of the Australian pulp and paper mills compared to the large modern mills in the
Asia–Pacific region is a further disadvantage.

Overall, Pöyry considered Australian producers of containerboard and newsprint to be very
competitive in the Australian market and competitive in the Asia–Pacific market. The printing and
writing paper producers were less competitive, largely due to the lack of large‑scale machines.
The competitiveness of the tissue market is more complex, depending on the product and market.
However, the competitiveness of the Australian producers is strongly affected by the strength of the
Australian dollar compared to the currencies of competing countries and to the US dollar.

Pöyry found that governments in many competitor nations have taken a more active role than
Australian governments in assisting new projects, although Australia is considered to have a good
overall environment for business. Governments in some other countries provide a range of tax
incentives and soft loans for new projects.