CCTV Follow-up: Corrugated Paper Raised Four Times in 20 Days, Cost Pressure Spreads Downstream

Since August, a number of papermakers have issued repeated price adjustment notices, lifting ex-works prices for corrugated paper. What caused the sudden increase? And what is the corrugated paper market doing right now?

Costs keep climbing: corrugated paper priced up four times in 20 days

Li Zonghui, head of a paper company in Shandong, told reporters that since August this year, the corrugated paper his company produces was repriced four times in a row in less than 20 days. The ex-works price per tonne climbed straight from 3,680 yuan to almost 4,000 yuan.

Li Zonghui, assistant to general manager of a papermaking enterprise in Shandong: After August began, corrugated paper prices rose step by step, and are now held between 3,850 yuan and 4,000 yuan.

Executives at several paper companies told reporters that higher domestic waste paper raw material prices this year are among the main forces driving corrugated paper prices up. As the comprehensive ban on solid waste imports took effect, paper enterprises' waste paper import quota was also cut to zero from January 1 this year, leaving domestic waste paper even tighter.

Li Zonghui, assistant to general manager of a papermaking enterprise in Shandong: Previously, about 15 million to more than 20 million tonnes of foreign waste paper entered China each year. With such a large gap opening up, demand for domestic waste paper has shown a rapid upward trend this year.

Data show that the national average price of AA-grade corrugated paper in China is currently around 3,870 yuan per tonne, up about 15% year on year. Even so, most paper company heads still told reporters that business is difficult.

Wang Lianshui, chairman of a papermaking enterprise in Dezhou, Shandong: Profit margins this year are very thin, almost non-existent. Compared with the start of the year, the price per tonne has risen by more than 600 yuan.

To handle higher raw material costs, many paper companies this year began taking paperboard offcuts from downstream packaging plants, bypassing waste paper baling stations, and hauling them directly back to the mill. They also further unlocked capacity through technology upgrades and other measures. Industry insiders noted that the intensive wave of price increase letters in August reflected two aims: easing cost pressure through higher prices, and testing the market with tentative increases before peak season.

The peak season, together with persistently tight supply of domestic waste yellow board paper this year, will also underpin paper prices. Corrugated containerboard prices in the fourth quarter are expected to move mainly within a narrow upward range.

Paper prices move downstream: packaging enterprises face challenges

In everyday life, a large share of express cartons and packaging boxes are made from corrugated paper. How is the sustained rise in corrugated paper prices affecting downstream packaging companies? And what is the current market situation for packaging firms?

At a packaging plant in Shandong, Ying Wenjun, the head, was checking the corrugated paper market. At the same time last year, his factory had to keep at least 35 to 40 days of corrugated paper inventory; today, its inventory cycle is less than 15 days.

Ying Wenjun, general manager of a paper products packaging enterprise in Shandong: We are still taking a wait-and-see approach. The overall end market is somewhat sluggish, affected by the pandemic, ocean shipping export orders and other factors.

The reporter is holding a finished carton made by a packaging plant. Normally, a packaging plant decides the base paper grammage based on the brand owner's requirements for compression strength and bursting strength. For instance, the carton in the reporter's hand is about three layers thick. The head of the plant told the reporter that about 60% of this year's base paper cost increase has been passed on to downstream companies.

Ying Wenjun, general manager of a paper products packaging enterprise in Shandong: Usually customers and we have a linked pricing mechanism. Increases below 10% of the corrugated paper price are borne by us. Recently, corrugated paper costs rose by about 15%, and roughly 9% to 10% of that is absorbed by customers for us.

Heads of some packaging companies told reporters that after entering the second half of the year, production costs climbed further, squeezing corporate profit margins.

Wang Jun, chairman of a paper products packaging enterprise in Shaoxing, Zhejiang: Raising prices downstream cannot fully cover the cost increase. Costs will continue to rise in the second half of the year.

Feng Yan, information business director at Zhiye Lianxun: For packaging processors, this may be only a short-term impact, and there may be a time lag in price transmission. But the companies that need to buy cartons and boxes are the ones bearing the largest share of the increase.

Filling the raw material gap: papermakers secure supply through multiple channels

At present, waste paper accounts for about 55% of China's papermaking raw materials. Facing the gap in waste paper raw materials, the entire industry chain has accelerated efforts to find substitute raw materials.

At a paper company in Shandong, the head told reporters that the company began exploring waste paper substitutes two years ago. After continuous trials, it finally found a more suitable substitute: reeds.

Li Zonghui, assistant to general manager of a papermaking enterprise in Shandong: Domestic waste paper costs about 2,600 yuan per tonne, while reeds are currently purchased at about 700 yuan per tonne. In the end, the pulp-making cost is almost no different from the pulp-making cost after waste paper prices rise.

Industry insiders pointed out that going forward, China should further improve cascade utilization of domestic waste paper, tap resource potential, and secure raw material demand across the papermaking industry chain through multiple channels.

Zhao Zhendong, vice chairman of the Shandong Paper Industry Association: We should try to guarantee raw material supply through multiple channels. Adding self-made wood pulp capacity will certainly raise investment costs, but over the long term it remains beneficial for paper companies, as it can ensure product quality and stable raw material supply.

Industry insiders told reporters that waste paper cannot be imported, but pulp can. Since the beginning of this year, many paper companies have expanded overseas investment layouts and built pulp production lines.

Data from the General Administration of Customs show that from January to July this year, China imported 1.31 million tonnes of recycled fiber pulp, up 23% from the same period last year. The average price rose from US$308 per tonne to US$389 per tonne, an increase of 26%.

—This article is reprinted from China Packaging Network (pack.cn). Original link: http://news.pack.cn/show-378295.html