Plastic Ban Opens Growth Space for Paper Packaging: Shandong Papermakers Accelerate Paper-for-Plastic Pivot

With the economy recovering and consumption warming up, the papermaking sector delivered broadly stronger first-quarter results. Several listed companies, including Shandong-based producers Sun Paper and Chenming Paper, have recently issued Q1 forecasts, most showing sharp gains and some even doubling. Industry observers point to the plastic restriction order as one important reason behind this rapid growth.

From January 1, 2021, non-degradable plastic bags are no longer allowed for shopping in Beijing, Shanghai and other municipalities and provincial capitals. Disposable plastic straws have also been removed from beverage outlets across the country. At dine-in venues in scenic areas of prefecture-level cities and above, disposable plastic tableware is off the table as well...

With demand for paper products and pulp rising markedly and prices accelerating upward, more papermakers are shifting their business focus to compete in the emerging paper-for-plastic arena.

Food-service paper packaging market widens under the strictest plastic restriction order

From hot dry noodles and fried chicken to popular milk tea and snacks, food categories are looking for greener packaging solutions. As the plastic ban takes effect, the market space for paper products in food applications has quickly expanded.

This shift stems directly from the strict implementation of the plastic restriction order.

Starting January 1, 2021, Jinan began prohibiting or restricting the production, sale and use of certain plastic products in selected sectors. Disposable plastic tableware is being phased out in stages: by the end of 2020, the city’s catering sector was barred from using non-degradable disposable plastic straws; dine-in services in built-up urban areas and scenic spots were prohibited from using non-degradable disposable plastic tableware. By the end of 2022, dine-in catering services in built-up areas of county towns (districts) and scenic spots will also be banned from using non-degradable disposable plastic tableware.

Demand tends to create substitutes. As non-degradable plastic products exit certain markets under the plastic restriction order, many applications are turning to paper. Industry insiders believe paper can replace plastic to a high degree, and from 2020 to 2025, demand for paper packaging such as folding boxboard, linerboard and corrugated paper is expected to grow substantially, making paper a key force in plastic substitution. On this basis, Shandong papermakers including Chenming Paper are expected to benefit.

Public information shows that Meituan, Ele.me and Baidu Waimai together handle about 20 million delivery orders a day. Conservatively, daily packaging demand is at least 20 million units.

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

Technology innovation boosts food-grade paper: hot cups, cold cups and paper meal boxes all become viable

The plastic ban has opened considerable room for paper-based packaging. Sun Paper, a major papermaker, is investing actively in new product development and optimizing its product mix to seize early opportunities, with clear results.

Under the updated plastic restriction order, substitution demand for folding boxboard is substantial, keeping the sector highly active. Sun Paper, which has board production capacity, has therefore drawn significant market attention.

On the evening of April 7, Sun Paper issued an earnings forecast, expecting Q1 2021 net profit attributable to shareholders of RMB 1.072 billion to RMB 1.126 billion, up 100%–110% year on year. During the period, improved market conditions and higher prices for domestic dissolving pulp significantly strengthened the profitability of the company’s dissolving pulp products.

As early as 2019, Sun Paper began moving into new materials and developed “plastic-free coated food packaging paper”. The product uses traditional doctor blade coating to apply barrier materials inline within the paper machine, can be directly formed into cups, delivers higher production efficiency and improves the customer experience.

“This cooperation is a useful exploration as we enter food-grade paper and lays a foundation for market expansion after the plastic ban,” said Ying Guangdong, deputy general manager and chief engineer at Sun Paper. He noted that the new product meets national safety standards and can be widely used in food packaging paper for hot drink cups, cold drink cups, ice cream and paper meal boxes, driving industry innovation and vertical extension of the industrial chain.

In Sun Paper’s food paper workshop, the 3520 paper machine runs steadily under automated control. “Before the Spring Festival this year, we completed the technical upgrade of the 3520 paper machine. It can now produce the extrusion-coating base paper needed for food packaging after the plastic ban, and capacity has increased notably,” said Guo Feng, food paper production director at Sun Paper.

If the plastic ban has created broad market potential for papermakers by opening substitution space in traditional food packaging such as plastic packaging and straws, Sun Paper’s continued efforts to expand its product and industrial chains are providing sustained momentum for business transformation and high-quality development.

Downstream folding boxboard demand stays strong, with Q1 capacity utilization near full load

As an industry leader, Chenming Paper has 2 million tonnes of folding boxboard capacity. Its folding boxboard products currently hold about 20% market share. GF Securities believes future supply growth will be limited, while continued implementation of the plastic restriction order will lift industry demand and push folding boxboard prices higher.

In fact, based on a scientific assessment of industry trends, Chenming Paper began building a full industrial chain more than a decade ago. Starting in 2005, it completed five pulping and papermaking lines featuring advanced international technology in Zhanjiang, Guangdong. Since 2018, it has built two major pulping projects and two major papermaking projects in Huanggang and Shouguang, which are gradually generating returns. Chenming now has about 4.3 million tonnes of wood pulp capacity, making it China’s largest pulp and paper enterprise.

Chenming Paper recently released its 2021 first-quarter report. The disclosure showed that in the first quarter of 2020, the company generated revenue of more than RMB 10 billion and net profit attributable to shareholders of 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 of machine-made paper” and the cost advantage of pulp-paper integration under the “waste import ban” and “plastic restriction order”.

Northeast Securities notes that downstream demand for Chenming’s folding boxboard is strong. With white board paper capacity being phased out and the waste import ban and plastic restriction order tightening, folding boxboard is absorbing substantial substitution demand from gray-backed white board paper and non-degradable plastics. The company’s Q1 capacity utilization was near full production, and demand is expected to remain hot throughout the year.

According to CCTV News, a large pulp and paper enterprise in Rizhao, Shandong, operates its production lines on a three-shift system, with each shift working eight hours and machines running at full load around the clock. Daily folding boxboard output is about 1,600 tonnes, and 500,000 tonnes of folding boxboard capacity has been completed this year.

Industry insiders analyze that as the market expands, leading companies’ industrial chain advantages will have more room to play, and scale-driven marginal cost advantages will further translate into higher marginal benefits. This logic has been verified repeatedly in the development of leaders such as Chenming Paper and Sun Paper. “Both the pace of the plastic restriction order and the speed of companies’ capacity release will affect the industry.”

Over the longer term, however, thick, sturdy, environmentally friendly and convenient folding boxboard may become the mainstay of the paper-for-plastic transition.

——This article is reprinted from China Packaging Network (pack.cn). Original link: http://news.pack.cn/show-377244.html