Nine Dragons and Peers Raise Prices in Concert as Packaging Paper Peak Season Sparks Second Hike Wave This Year

With Double 11, Double 12, New Year's Day and Spring Festival arriving in quick succession at year-end, packaging paper has entered its peak demand period. Because raw material and energy costs remain elevated, paper manufacturers have launched the second collective price increase round of 2021.

Nine Dragons Paper, a leading player in papermaking, recently announced that from November 16, products including corrugated paper and white board paper from its Dongguan, Quanzhou, Taicang, Tianjin, Chongqing and Shenyang bases will be increased by RMB 100 per tonne over current prices.

This is not the first time Nine Dragons Paper has issued such notices. In October this year, the company set a record by releasing six price increase letters in a single day. Those notices said that from October 13, Dongguan Nine Dragons, Tianjin Nine Dragons and Chongqing Nine Dragons would raise corrugated paper and kraft linerboard by RMB 100 per tonne, while from October 18, grey-back white board and white-top/coated kraft linerboard would also rise by RMB 100 per tonne.

Corrugated and linerboard prices lead the gains.

Paper prices have continued to climb recently. Beyond Nine Dragons Paper's six price increase letters in one day, which drew market attention, APP (China), Sun Paper and Bohui Paper also issued their own price increase notices. On November 8, Sun Paper said it would raise ordinary woodfree offset paper by RMB 200 per tonne on top of current prices. Before that move, on October 25, Sun Paper had already issued a notice stating that from November 1, ordinary coated art paper would be increased by RMB 300 per tonne over October levels.

Synchronized price increases by several listed paper companies have added further heat to the paper market.

This marks China's second paper price increase wave this year; as early as May, raw material shortages and the plastic restriction policy had already driven a previous surge.

Commenting on this round, a Tianfeng Securities analyst noted that corrugated and linerboard prices posted larger increases, small and medium-sized mills clearly followed suit, while cultural paper price hikes were concentrated among leading producers.

In specific terms, corrugated paper used in shipping cartons and food outer packaging has shown the most pronounced price increase recently.

Data shows that Nine Dragons Paper's average ex-factory corrugated paper price rose from RMB 3,980 per tonne at the start of the year to RMB 5,090 per tonne on November 8. Its Dongguan base also recently issued an official shutdown letter for the period around the Spring Festival. The base will begin Spring Festival maintenance shutdowns on January 22, 2022, covering kraft linerboard, corrugated paper, white board paper and others, with individual paper machines down for 7 to 21 days and the latest shutdown running to April 21 next year. Based on designed capacity, the Spring Festival shutdown is expected to cut the company's output by 485,000 tonnes. From a supply-demand perspective, this is not favorable for corrugated paper prices to retreat.

On cultural paper, several major producers including Bohui Paper, Shandong Sun Paper and APP Golden Paper announced that from November 1, various paper grades would rise by another RMB 300 per tonne on top of October prices.

Waste paper prices rise in tandem.

In waste paper, as finished paper and base paper prices kept rising, domestic waste paper recycling prices have been raised continuously since November. On November 1, East China lifted prices by RMB 20-50 per tonne. Zhejiang Jiaxing Jingye raised waste paper prices by RMB 30-50 per tonne from November 1; Zhejiang Huachuan Industrial raised ABCD prices by RMB 50 per tonne from the same date; and Shandong Dezhou Depaike Paper raised prices for ordinary blue board, supermarket and pagoda tube by RMB 30 per tonne from November 1. Paper prices also increased in North, South and Central China: North China by RMB 30-50 per tonne, South China by RMB 20-30 per tonne, and Central China by RMB 30-50 per tonne.

Industry insiders suggest that once waste paper prices enter a new upward cycle, they tend to continue for a short period. Impacted by the waste plastics ban and waste ban, plus a sharp rise in packaging paper orders during the Double 11 and Double 12 e-commerce festivals, demand for finished paper and waste paper has increased. Insiders expect waste paper prices in the near term to generally move upward in line with base paper prices.

Pulp and waste paper have long been two key raw materials for papermaking. Notably, even as base paper and waste paper prices kept rising, the spot market for pulp raw materials moved downward amid volatility, with domestic pulp prices at a relatively low level within five years. This has created a rare disconnect between pulp and finished paper prices.

Asked why listed paper companies raised prices together, the head of the Dongguan Paper Industry Association said the main driver was rapid increases in raw materials such as waste paper, thermal coal and chemicals. Earlier power rationing also affected papermakers. As the market entered a peak demand season before year-end, constrained capacity and supply-demand imbalance produced this round of price hikes.

Data shows that raw materials account for 60%-70% of the papermaking cost structure, while energy such as electricity and coal accounts for around 10%-15%.

Under the dual policies of the plastic ban and the waste ban, China's waste paper supply gap is projected to reach 6.89 million tonnes this year. At the same time, pandemic-related factors have left pulp supply tight, as China relies heavily on imports. China is the world's largest importer of pulp raw materials, with 90% sourced from Canada, Finland and other locations. Raw material shortages are a major factor behind this round of paper price increases.

As the Northern Hemisphere moves into winter, demand for coal used in power generation is rising, and coal-fired power prices are broadly increasing. Higher costs for coal power and auxiliary materials such as chemicals and starch used in papermaking are also important drivers of this round of paper price increases.

Under cost and operating pressure, major mills have announced increases one after another. On November 3, Nine Dragons Paper said in a notice that because raw and auxiliary material prices and logistics costs remain high, and to ensure normal production and supply while continuing to provide customers with quality products and services, it would raise finished paper prices by another RMB 100 per tonne. Meanwhile, Chenming Paper said in its notice that due to sharp increases in energy and chemical raw materials such as thermal coal and caustic soda, it would raise order prices for Chenming cultural paper series by RMB 300 per tonne from October 8, and by another RMB 300 per tonne after October 25.

Beyond higher main and auxiliary material costs, supply-demand imbalance has also pushed paper prices up. Affected by dual control of energy consumption and power rationing, paper mills have generally operated at low utilization rates recently. With Double 11, Double 12, Christmas and New Year's Day arriving in succession, packaging paper demand is strong, the industry has entered its year-end peak season, and the supply-demand gap has further fueled price increases.

Will paper prices rise further by year-end?

It is worth noting that although paper prices have kept rising, the papermaking sector's third-quarter results were less than ideal under the impact of dual energy consumption controls and higher raw material costs, and share prices have remained low.

According to Southwest Securities research, the papermaking sector's revenue and net profit growth slowed in the third quarter. Revenue reached RMB 49.3 billion, up 17.4% year on year, while net profit was RMB 2.5 billion, down 12.7% year on year.

Other data shows that among 12 companies in the paper concept sector, 9 saw their gross profit margins decline to varying degrees in the third quarter of this year compared with last year. Chenming Paper and Sun Paper both posted clear quarter-on-quarter declines in third-quarter performance.

On October 29, Chenming Paper released its third-quarter financial report. In the first three quarters of 2021, operating revenue was RMB 25.76 billion and net profit attributable to the listed company was RMB 2.18 billion. Third-quarter net profit was RMB 161 million, down 80.9% quarter on quarter from RMB 842 million in the second quarter, and down 86.36% from RMB 1.18 billion in the first quarter.

On October 27, Sun Paper released its report for the first three quarters of 2021. Revenue totaled RMB 23.71 billion and net profit attributable to shareholders of the listed company was RMB 2.77 billion. Third-quarter revenue was RMB 7.9 billion, down 3.3% quarter on quarter from RMB 8.17 billion in the second quarter. Third-quarter net profit was RMB 537 million, down 52.2% quarter on quarter from RMB 1.124 billion in the second quarter.

With major paper companies raising prices frequently, where will paper industry prices go by year-end? Ye Qing, deputy director of the Hubei Provincial Bureau of Statistics and professor and doctoral supervisor at Zhongnan University of Economics and Law, told China Times that the papermaking industry's wave of price increases will last for some time, with rising costs a key factor and no easy substitutes.

Other industry insiders note that the second half is the traditional peak sales season for papermaking, raw materials remain at high levels, and paper prices are expected to keep fluctuating upward. As price increases become more frequent, the tug-of-war between upstream and downstream players in the papermaking supply chain may intensify.

Source: China Packaging Network (pack.cn); original link: http://news.pack.cn/show-378662.html