Plastic Ban Heats Up Paper Packaging: Shandong Papermakers Race Into Paper-for-Plastic Market

China’s papermaking sector started the year with broad gains, supported by an economic rebound and stronger consumer spending. Several listed paper companies—including Shandong-based Sun Paper and Chenming Paper—have issued first-quarter forecasts, with most expecting sharp growth and some projecting doubled results.

What is driving this rapid expansion? The nationwide plastic ban is a key factor.

Since January 1 this year, non-degradable plastic bags have been barred from shopping in municipalities such as Beijing and Shanghai and in provincial capitals. Disposable plastic straws have also vanished from beverage outlets nationwide, and at scenic spots in cities at prefecture level and above, single-use plastic tableware is no longer allowed on tables.

With demand for paper products and pulp rising sharply and prices climbing quickly, many papermakers are accelerating investment to capture the fast-growing “paper replaces plastic” market.

Plastic ban moves from policy to reality

Paper products gain a much larger market

From hot dry noodles to bucket-sized fried chicken, from popular milk tea drinks to snacks of all kinds, food businesses are looking for high-quality green packaging as the plastic ban takes effect. The market for paper products in food applications has expanded quickly.

This shift is rooted in the implementation of the plastic ban.

Beginning January 1, 2021, certain areas of Jinan banned or restricted the production, sale and use of some plastic products. By the end of 2022, non-degradable disposable plastic tableware is to be prohibited in dine-in catering at built-up areas of county towns and districts and at scenic attractions.

Demand creates substitutes. As the plastic ban pushes non-degradable plastic products out of the market, some common applications are turning to paper. Industry observers note that paper offers strong substitutability for plastic. From 2020 to 2025, demand for paper packaging—led by white card stock, linerboard and corrugated paper—is expected to grow substantially, making paper a backbone of plastic substitution. On that basis, multiple Shandong papermakers, including Chenming Paper, are widely expected to be among the biggest beneficiaries.

Public data show that Meituan, Ele.me and Baidu Waimai together handle about 20 million delivery orders per day. Even on a conservative basis, daily packaging demand would reach at least 20 million pieces.

Qichacha data indicate that China now has 35,000 papermaking-related companies. In 2020, 5,716 related companies were newly registered, up 67% year on year. By region, Shandong ranks first with 6,474 companies, or 19% of the national total.

Innovation in food-grade paper

Hot cups and cold cups both covered

Faced with the large opportunity that the plastic ban creates for paper packaging, leading papermaker Sun Paper is pushing product innovation and optimizing its product mix to seize market opportunities. The efforts have produced notable results.

Under the updated plastic ban, substitution demand for white card stock is substantial, keeping the segment highly active. Sun Paper, which has card stock production capacity, has drawn considerable market attention.

On the evening of April 7, Sun Paper released an earnings forecast. It expects first-quarter 2021 net profit attributable to shareholders of RMB 1.072 billion to RMB 1.126 billion, up 100% to 110% year on year. During the period, improved market conditions for domestic dissolving pulp and higher product prices significantly boosted profitability in the company's dissolving pulp business.

Back in 2019, Sun Paper began exploring new materials and developed “plastic-free coated food packaging paper.” The product applies barrier materials in-line on the paper machine using conventional doctor blade coating. It can be converted directly into cups, offers higher production efficiency and provides customers with a more comfortable experience.

Ying Guangdong, deputy general manager and chief engineer at Sun Paper, said the cooperation was a useful step into food-grade paper and laid a foundation for market expansion after the plastic ban. He noted that the new product meets national safety standards and can be widely used in food packaging paper such as hot drink cups, cold drink cups, ice cream and paper lunch boxes, driving industry innovation and vertical extension.

In Sun Paper's food paper workshop, the 3520 paper machine runs steadily under automated control. Guo Feng, production director for food paper at Sun Paper, said the company completed a technical upgrade of the 3520 machine before this year's Spring Festival. It can now produce PE-coated base paper for food packaging required after the plastic ban, and its capacity has increased significantly.

If the plastic ban has opened broad market imagination through substitution opportunities in plastic packaging, plastic straws and other traditional food packaging, Sun Paper's commitment to strengthening its product chain and industrial chain provides lasting momentum for transformation and high-quality growth.

Downstream demand for white card stock remains strong

First-quarter capacity stays at a high level

As a papermaking leader, Chenming Paper has 2 million tonnes of white card stock capacity. Its white card stock products currently hold about 20% market share. GF Securities believes future industry supply growth will be limited, while continued implementation of the plastic ban will lift demand and push white card stock prices higher.

After analyzing industry trends, Chenming Paper began building a full industrial chain layout more than a decade ago. Starting in 2005, it built five pulping and papermaking lines in Zhanjiang, Guangdong, incorporating advanced international technology. Since 2018, Chenming Paper has completed two major pulping projects and two major papermaking projects in Huanggang and Shouguang, which are now gradually delivering benefits. Chenming's wood pulp capacity is about 4.3 million tonnes, making it China's largest pulp and paper enterprise.

Chenming Paper recently released its 2021 first-quarter report. Revenue exceeded RMB 10 billion, and net profit attributable to shareholders of the listed company reached RMB 1.18 billion, up 481% year on year. Net profit attributable to shareholders after deducting non-recurring gains and losses rose 709%. In its earlier earnings forecast, Chenming Paper attributed growth to higher market demand driving both price and sales volume increases in machine-made paper, as well as the cost advantages of pulp-paper integration under the waste import ban and plastic ban.

Northeast Securities said downstream demand for Chenming's white card stock is robust. With white board paper capacity being phased out and the waste import ban and plastic ban tightening, white card stock is seeing significant substitution demand from grey-back white board paper and non-degradable plastic. The company's first-quarter capacity utilization was close to full, and demand is expected to remain hot throughout the year.

CCTV reported that at a large paper company in Rizhao, Shandong, production line workers have adopted a three-shift system. Each shift lasts eight hours, and machines run at full load around the clock. Daily white card stock output is about 1,600 tonnes, and 500,000 tonnes of white card stock capacity has already been completed this year.

Industry insiders say that as leading companies expand their industrial chain advantages, they will have more room to perform. Marginal cost advantages generated by scale can drive higher marginal benefits. This pattern has been repeatedly demonstrated in the development of leaders such as Chenming Paper and Sun Paper. The pace of the plastic ban and the speed of company capacity releases will both affect the industry.

Over the long term, however, thick, sturdy, environmentally friendly and convenient white card stock may become a central player in the transition to paper replacing plastic.

—This article is reprinted from China Packaging Network (pack.cn). Original link: http://news.pack.cn/show-377218.html