"Our target is to increase our sales of innovative paper from 6 per cent a year to 20 per cent in the next five years," said president Chaovalit Ekabut in an exclusive interview with The Nation.

He said the group would develop up to 100 new paper products. Research will be completed and the first products launched on the market this year.

The innovative products include water-resistant paper and paper for safe packaging.

Currently, the company has several new paper products, such as "Green Read", which is easy on the eyes when reading. Innovative paper generated 5 per cent of its total sales of Bt42.64 billion last year.

Chaovalit said innovative paper generated higher margins than normal paper and with less competition in the market.

The company has invested about Bt12.5 billion this year, part of an investment plan of Bt18 billion from last year till 2008. Of the total investment budget, it will spend Bt5.2 billion to establish a new Kraft paper plant in Vietnam, which will have a production capacity of 220,000 tonnes a year. The rest will go towards expanding the production capacity of the plant in Khon Kaen province.

Currently, SCG has a total production capacity for paper of 2 million tonnes a year: 1.5 million tonnes of packaging and industrial paper and the remainder of printing and writing paper. When the new investment plan is complete, the group will increase its production capacity up to 2.2 million tonnes from its plant in Thailand and 220,000 tonnes of Kraft paper in Vietnam.

"Vietnam is a potential market for our business, because a number of foreign industries are expanding their investment in Vietnam. As a result, demand for Kraft paper for packaging will enjoy strong growth in Vietnam," Chaovalit said.

At present, demand for Kraft paper in Vietnam is 1.5 million tonnes a year and average growth 10 per cent a year following the country's industrial growth, Chaovalit said. Chaovalit said the group was looking for opportunities to expand its business in other countries in the region, though it preferred merging with local firms rather than establishing its own plants as in Vietnam.

SCG's paper ranks second in Southeast Asia's paper industry, behind Indonesian-based Asia Pulp and Paper, which has a production capacity of 5 million tonnes a year.

SCG's pulp and paper subsidiary now has two main business units: pulp and paper; and paper for packaging and industrial uses. Of its total sales of Bt42.64 billion, 66 per cent or Bt28.19 billion is from packaging and industrial paper and the remaining 34 per cent, or Bt14.45 billion, from pulp and paper.

Chaovalit said demand for paper would grow slightly by only 3-5 per cent this year, particularly printing and writing paper, which was feeling a negative impact from political uncertainty and the fall in consumer spending.

However, packaging paper and corrugated containers should have continued growth this year of up to 10 per cent, following strong demand from the export market in the first half of this year.

"Exporters may suffer from baht appreciation affecting new orders, but orders from last year for delivery in the first half of this year will continue strong," he said.

He added that although the company's sales should show continued growth of 5-10 per cent this year, the net profit would be less, because of the rise in the cost of raw materials.

The price of short pulp rose from US$560 per tonne at the beginning of last year to $600 per tonne at year's end. The price of long pulp increased from $560 to $710 per tonne in the same period.

"The pulp price will continue to rise following the growth in global demand, especially in China, from 5-10 per cent this year," Chaovalit said.

Chalida Ekvitthayavechnukul,

Somluck Srimalee

The Nation