Lee & Man Paper looks to grow rapidly in tissue while pioneering bamboo fiber

Hugh O’Brian

Perini Journal spoke with Raymond Lee, Chairman of Lee & Man Paper, in Hong Kong recently to learn about the company’s entry into the tissue market. Lee & Man Paper is a family-owned business that was started by Raymond Lee’s father, Lee Wan Keung Patrick who was born in China but spent a lot of time in Canada and Hong Kong. Lee & Man company was formed in 1975 and initially focused on designing and producing handbags. That business was very successful so in the early 1990s, just as Raymond was graduating from the University of British Columbia, Canada, Lee & Man Paper was created to take advantage of the growth possibilities China offered.

RAYMOND LEE PICKS UP THE STORY: “Honestly, we didn’t know anything about paper at that time, but we had the handbag business and we could see that good containerboard for corrugated boxes was a hard-to-find commodity in China. We formed the company in 1994 with my father as Chairman and me as CEO. It then took us four years to get the mill started in 1998. That’s when we opened the mill in Dongguan with two paper machines each with a capacity of 40,000 tons per year. Just to put things in perspective, today we are over 7,000,000 tons per year. The real boom years for us were between 2000 and 2008, where we were certainly working very hard to expand but also quite fortunate to be in the market at that time.”

DIDN’T KNOW PAPERMAKING AT ALL. Raymond readily admits that at the very beginning of the paper company they did not know anything about papermaking, and essentially learned it all by doing. “However,” continues Raymond, “back in 1998 you could make mistakes and still make money, but now in China everything has gotten so much better that the room for error has been incredibly reduced. The people you hire today are much better trained, the technology and equipment is much more advanced, and all the competitors have become much tougher.” Following the start of the first mill in 1998, Lee & Man Paper opened their second production site in Jiangsu, near Shanghai, in 2003. In 2006 Chongqing followed in the western part of China, and then in 2013 they opened another site in central China in Jiangxi.

CAREFUL WITH MONEY, FINANCING AND DOWNTURNS. Two years ago Lee & Man Paper was analyzing its future and considering the fact that China will likely move from an export-based production-investment economy to a consumer-based economy. This of course is quite a natural progression for any economy. As this occurs it will likely have an impact on Lee & Man Paper’s containerboard business since so much of the exports leave the country in boxes. Raymond says that about 60% of the box business is based on food and beverage in China which certainly will expand, but the other 40% is packaging for products like electronics, shoes and clothing, much of which is exported. So the conclusion was that some of that business will disappear. “We are very careful with our investments, and very fiscally conservative; we have self-financed essentially all of our growth. For that reason we have the highest profit margins in the containerboard business. We don’t borrow money; we don’t want to be working for the banks, we want them to work for us. However, a lot of entrepreneurs in China have never experienced an economic downturn and have no idea what it feels like.”

TISSUE BUSINESS LOOKS LIKE RIGHT CHOICE. After analyzing the possible markets to enter, Lee & Man Paper got started in the tissue business in 2014 with a small production capacity of about 50,000 tons per year by starting up two small tissue machines from Kawanoe and buying some small local mills that added three more tissue machines. All of this is in the Chongqing plant in Western China, alongside the existing containerboard mill and a 200,000-tons per year bamboo pulp line that Lee & Man Paper had built a few years ago. “We chose Chongqing because we already have the rather large bamboo pulp line there. So you could say, jokingly of course, that my tissue machine is actually my pulp dryer. We have excellent bamboo pulp quality and we are making high quality tissue with bamboo, which is a profitable business. So we are now considering expanding bamboo capacity a little bit more. The demand is there; we are getting a lot of requests for our bamboo-based tissue both in China and for the export markets. We’re very excited about developing this part of the business.”

BAMBOO HOT TOPIC NOW, BUT IT WASN’T PLANNED THAT WAY. While bamboo-based tissue is a very hot topic worldwide at the moment, Raymond says essentially that they got into the sector by chance. “We built the bamboo pulp line in 2006 when we were considering entering the printing and writing paper business, to diversify from containerboard. Since there was a lot of bamboo growing near the Chongqing mill, we decided to try it. Again, we really didn’t know what we were doing when we started this bamboo pulp line in 2008. Then the financial crisis hit in 2009. So instead of printing and writing paper, we just produced market pulp with the line for several years.” “In the end, our desire to diversify into consumer products, combined with the fact that we had the bamboo pulp line there already, led us to the sensible choice to produce tissue paper products with modern machinery based on bamboo. We had no idea it would become such a hot area, but it has worked out very well for us. And the timing is good, too, especially in Western China where the technology is still very backward, with hundreds of employees in tissue plants. This is not going to work for the long run for two reasons: number one the hygiene factor; and number two the labor costs – which used to be a non-factor in China – are now going up rapidly.”

BEST TECHNOLOGY TODAY TO COMPETE TOMORROW. Raymond sees automation and technology as a key tool that Lee & Man Paper will use both to keep costs down and catch up with the bigger competitors who are already established in the market. “Our philosophy is to install the best possible technology today, so we can compete tomorrow. We know labor costs are going up, we know quality demands are going up and we know we have to have efficiency. Labor is becoming one of the biggest cost factors, in fact. Our strategy is: fully automated, latest technology in papermaking and converting, automated warehouses, with very low headcount. So in technology and production we want to be ahead of the game, because we know market-wise we are behind, as we are a late entrant into the tissue market.” In Chongqing a new Voith machine was starting up in July, and a new Valmet machine will come on stream next year. Lee & Man Paper is just now launching a new tissue brand in China and the product will go on the market this summer. So by early next year, 2016, Lee & Man Paper will have 180,000 tons of total tissue capacity based on the two new machines and the previously existing capacity.

WHAT’S NEXT IN TISSUE? “I don’t want to sound overconfident,” declares Raymond, “but the plan is to do the same type of thing in the Jiangsu containerboard mill, meaning put in tissue machines and supply them with bamboo pulp. Frankly, we have 7,000,000 tons of containerboard now, soon going towards 8,000,000, so we don’t want to play around with a small capacity in tissue. We want to get big rather quickly. Within a couple years I’m thinking we may have a million tons of tissue capacity, if our experiment with this formula works out. This is publicly announced to our shareholders.” Even though it’s a competitive market, Raymond Lee feels that there is plenty of room for a good, efficient competitor in the tissue sector. And quite clearly a lot of tissue capacity from small, highly-polluting producers is in fact being shut down right now. And more will come in the future. “So the surviving companies will be big and environmentally friendly, producing high quality tissue products with competitive technology. I think with hard work and smart investments this will be a good business for us, although I am certainly aware that it won’t be as easy as the containerboard business was to start, when people were actually just standing and waiting for high quality containerboard to be produced in China. But we have all the elements in place to be very successful in tissue and as long as we maintain focus, I’m sure that’s what we’ll do.”