Nine Dragons Paper (Holdings), the mainland's largest containerboard manufacturer, plans to expand its business upstream by building pulp production plants and investing in forestry undertakings. Its plan calls for initial capital expenditure of some 11 billion yuan from now until June 2009 with further investment to follow. The bid to diversify its businesses comes amid surging demand in the packaging paperboard market in the mainland, co-founder and chairwoman Cheung Yan said. Asia, North America and South America will be potential locations where the pulp mills will be built. Ms Cheung, the mainland's richest person on Forbes 2007 Billionaires List, was talking in an interview at the Taicang, Jiangsu province plant, one of the company's production bases. 'We are exploring various options, which may include setting up a joint venture with local partners,' she said. Ms Cheung said the next few years would be a peak investment period for the company with planned capital expenditure of 11 billion yuan for financial years 2008 and 2009, compared with only 4.91 billion yuan in the past two years. Risi, an information provider in the mainland's forest products industry, projects that from last year's levels, the country's containerboard output will rise 70 per cent to 38.2 million tonnes in 2011 while demand will grow 65 per cent to 39.4 million tonnes. To capture the rising demand, Nine Dragons plans to expand its annual capacity to 18 million tonnes in five years from 5.35 million tonnes at present, which would help it achieve the target of increasing its market share in domestic packaging paper to 35 per cent in three years from 18 per cent. Ms Cheung said prices of raw materials, including pulp and recovered paper, were on the march this year because of the world's rising demand for paper products - an appetite that was likely to get bigger next year. Pulp prices increased more than 20 per cent to US$500 per tonne from last year while those of recovered paper also increased 10 to 15 per cent to between US$160 per tonne and US$200 per tonne, depending on the origin. An upstream expansion plan by Nine Dragons could bring significant cost savings and will be implemented over the next three years with production expected in five years, the company founder said. 'Pulp making will become one of Nine Dragons' core businesses, although I cannot say what proportion of total business it will be compared with the core containerboard business,' she said. Nine Dragons, which also operates in Dongguan, Guangdong province, is building another plant in Chongqing and planning one more in the northern region. It may link up with rival Lee & Man Paper Manufacturing to build a paper manufacturing plant in Vietnam. Ms Cheung said she was considering locating the northern region plant in Hebei province or the Binhai New Area of Tianjin. With an initial capacity of 800,000 tonnes of paper products annually, this plant will be funded by a syndicated loan of HK$2.3 billion the group secured last month. Construction will start next year and reach an annual capacity of three million tonnes ultimately. This will enable the company to cover all major markets in the mainland and provide potential export opportunities to buffer regional market fluctuations in the future, Ms Cheung said. Nine Dragons, which reported a 69 per cent surge in profit to 948 million yuan for the six months to December, has been riding the mainland's export wave. The company will fund its expansion mainly through bank borrowings and internal resources, given that the present gearing ratio was only 30 per cent - much lower than the industry's level of 65 per cent, Ms Cheung said. However, she did not rule out the possibility of the company launching another share placement to raise capital, following a placement in April that raised HK$2.035 billion.