China’s Waste Paper Ban and Soaring Freight: How Containerboard Trade Is Reshaping Global Paper Packaging

Trade flows and evolving economic links are among the forces reshaping global packaging markets, and China sits at the center of that shift in many respects. For decades, China's role as a global trading partner has been unmatched. More specifically,

China's waste paper import ban has structurally redirected global old corrugated container (OCC) flows and generated new global investment hot spots in containerboard.

The waste paper ban rewrites the global paper supply chain

China produced 127MMMT of paper and paperboard in 2020, up 0.8% from 2019. Containerboard demand was the main engine behind this capacity expansion, which represented more than 60% of Asia's new capacity.

The top three countries for paper and paperboard capacity investment in 2020 were China, India and Malaysia, with new capacity of 8MMMT, 1.8MMMT and 0.5MMMT respectively,

as illustrated below.

▲New paper and paperboard capacity investment

In 2017, China rolled out a waste paper import ban, which started to reshape the global waste paper import and export market.

The policy also set off a restructuring of the paper chain—from recyclers to papermakers—across Asia, the Americas and Europe.

China adopted the ban to shield environmental resources and public health from heavy pollution caused by poor-quality waste paper.

Consequently, OCC—the leading waste paper grade used in containerboard—was severely affected. Numerous Chinese mills saw import licenses revoked after failing environmental standards, causing a steep drop in OCC imports from the United States and the European Union. In early 2021, China banned OCC imports completely, affecting total imports across multiple paper grades. As waste paper imports declined, imports of other paper grades increased.

Beyond the waste paper ban, China also began removing unnecessary and harmful plastic waste.

The anti-single-use plastics policy and the 2021 full waste paper import ban pushed producers to seek alternative raw materials, though their long-term supply and volumes remain uncertain. For instance,

Nine Dragons announced two new BCTMP lines supplied by ANDRITZ, including P-RCAPMP (pre-treatment refining chemical alkaline peroxide mechanical pulp) technology for FBB production at its Hubei base, plus a CTMP line from Valmet. Lee & Man also said ANDRITZ will supply two chemi-mechanical fiber lines, with capacities of 1,000admt/d and 670admt/d, for its Dongguan and Jiujiang mills, while Valmet will provide a semi-chemical pulp line for its Chongqing mill.

Another example is

a BCTMP line was also ordered from Valmet. All of these new fiber lines will feed pulp to various packaging and graphic paper lines.

Their raw materials mainly come from eucalyptus, acacia and poplar wood chips as well as wood waste. Sun Paper already uses wood waste in corrugated paper production.

With China's OCC ban and the ongoing relocation of Chinese manufacturing,

US OCC exports have shifted away from China toward Southeast Asia

as shown below. Fischer believes that after the full waste paper import ban, together with the continued impact of the plastics restriction order and the rise of wood fiber packaging, China's demand for market wood pulp and other paper products will create stable growth opportunities for the industry.

Freight costs jump over 400%, putting containerboard imports under pressure

Meanwhile, a very serious current issue is that

rising transport costs continue to weigh on China's containerboard imports.

Since Q4 2020, transport costs have climbed sharply amid fierce competition for shipping containers. Yet data from the global Baltic Dry Index show that

prices rose by more than 400% between January and April 2021.

In a recent study, ING said: “With new capacity slowly coming on stream, freight rates are expected to continue setting new highs this year and to remain above pre-pandemic levels over the long term.”

A key factor behind the freight spike is the imbalance caused by different demand recovery paths across countries after the 2020 pandemic. China's full waste paper import ban has further worsened that imbalance, since hundreds of thousands of returning containers are no longer needed each month.

The massive export demand that Chinese supply could not meet ultimately drove freight costs to historic highs.

What will this challenge mean for China's paper industry imports and exports, especially containerboard, and how long will it last? China is the world's largest paper and paperboard producer and is largely self-sufficient in every paper and paperboard grade except containerboard. Last year, China imported about 7 million tonnes of containerboard, as shown below. With the full waste paper import ban, China needs these imports as an alternative to sustain growing domestic demand, opening opportunities for Western containerboard producers. But with record-high freight rates now routine, is this opportunity actually profitable?

▲China's paper and paperboard imports and exports in 2020

Compared with its Asian peers,

in Q4 2020 the United States led on shipping costs to Shanghai, with an advantage of about USD 100-150 per tonne.

The recent increase in US-China freight rates may be as high as 200%, eroding much of that advantage.

A closer look at containerboard exports to China shows that the United States lost its position as China's second-largest supplier in Q2 2021, with exports to China falling since 2020 (chart below). Still, it is reasonable to assume that

if freight costs remain elevated over the long term, as ING noted, US producers will have less room to profit from shipping containerboard to China.

▲Main containerboard exporting countries to China in Q2 2020 and Q2 2021

▲US quarterly containerboard exports to China, 2020-2021

For Chinese producers with containerboard operations in the United States, stronger sales efforts in the US market may be required, because shipping to China is no longer as profitable as before. High freight rates are expected to persist in the near term, making it necessary to find alternative sales strategies that do not involve exporting materials to China. Also worth noting: if end products target export markets, sustained high freight rates could curb potential overseas investment in the US containerboard sector.

Source: China Packaging Network (pack.cn), original link: http://news.pack.cn/show-378096.html