Late-August Discounts on Corrugated and Containerboard: Why Nine Dragons Dongguan Will End Them in September

On Friday, August 27,

Nine Dragons’ Dongguan and Quanzhou bases, Liansheng Paper and Guangdong Lee & Man moved in succession to offer month-end discounts on corrugated paper and containerboard, ranging from RMB 50 to RMB 100 per tonne, while notifying customers that original prices would resume on September 1.

This year’s Mid-Autumn Festival lands on September 21, making late August a period that would normally see stronger corrugated and containerboard demand. Why, then, did discounts appear? Below is a point-by-point look at the drivers.

Reviewing corrugated paper price trends

Chart: corrugated paper price trend, 2019–2021 ↓

From January to August, corrugated paper prices traced a 'V' shape. From early May, the market shifted to stable with slight gains, and the upward pace widened further in August.

In August, the national average price of corrugated paper reached RMB 4,101 per tonne, RMB 579 per tonne above the RMB 3,522 per tonne recorded a year earlier — a year-on-year gain of 16.44% and a month-on-month rise of 2.08%.

Yet in late August, discount offers appeared frequently and demand entered a quiet phase.

Key reasons behind the moves

1. Recurring public health incidents and extreme weather weighed on the domestic market

In July and August, public health incidents broke out in many parts of China. By late August, Yunnan, Jiangsu, Henan, Hunan, Hubei, Shanghai and Beijing were still classified as high- or medium-risk areas. Travel and transport were affected, consumption in public venues and tourism came under pressure, and domestic demand sentiment stayed weak.

This year, Henan, Hubei, Sichuan, Shaanxi and other regions were hit by typhoons and heavy rain, leading to flooding. Local economic activity suffered, and aside from some relief supplies, demand for everyday goods fell.

Chart: year-on-year change in total retail sales of consumer goods ↓

July saw total retail sales of consumer goods of RMB 3.4925 trillion, an 8.5% year-on-year increase; versus July 2019, the amount was 7.2% higher, with a two-year average growth rate of 3.6%. Retail sales excluding automobiles came to RMB 3.1578 trillion, up 9.7%. After stripping out price factors,

July’s total retail sales of consumer goods thus rose 6.4% in real terms.

1. Overseas public health incidents restrained growth in exported goods

Public health incidents in many overseas countries continued to develop, with weak prevention and control measures,

Containers for imports and exports sat idle overseas, while sluggish container circulation blocked the flow of goods,

creating bearish pressure on indirect exports of corrugated and containerboard paper and weakening overseas demand.

1. Mid-Autumn and National Day holiday orders were gradually delivered, leaving insufficient new orders

With the Mid-Autumn Festival and National Day holidays drawing nearer, downstream packaging firms

gradually completed delivery of holiday orders, while regular new orders remained limited; paper mills therefore kept focusing on reducing inventories,

and downstream packaging companies remained cautious when buying base paper.

1. Holiday orders for the two festivals are now largely fulfilled,

paper mills and downstream packaging converters are short of orders,

a bearish signal for the corrugated paper and containerboard market,

leaving paper prices exposed to downside risk in the 'Golden September' window.

1. Although waste board paper prices have pulled back recently, the supply of waste yellow board paper as a raw material has remained tight this year. To maintain normal production, domestic waste yellow board paper prices are unlikely to fall sharply. High raw material costs will limit the downside for corrugated paper and containerboard prices, while the peak demand season in the fourth quarter still carries upward expectations.

Carton Micro Vision adds:

The discount period ends on August 31, so paper pricing policy will change from today, September 1. Latest news from Carton Talk indicates the following:

Nine Dragons Paper (Dongguan) is canceling its earlier price discounts in batches: on September 1, corrugated paper, kraft linerboard and recycled kraft linerboard were raised by RMB 50 per tonne; on September 8, the same grades are scheduled for a RMB 50 per tonne increase.

Whether other bases will follow suit and cancel discounts remains to be seen. With demand growth still unclear, the industry’s overall trend is subdued, and mid- and downstream players continue to watch and wait.

——Reprinted from China Packaging Network (pack.cn). Source link: http://news.pack.cn/show-378148.html