Corrugated Paper Market Likely to Slowly Climb in H2 of 2024
Intro: In H1 of 2024, the corrugated paper market fluctuated downwards. The market remained in an oversupply state, and the main feedstock OCC prices dropped over expectations, dragging down the corrugated paper market prices. In H2 of 2024, demand is expected to increase, but some new capacity may be launched, leading to a tug-of-war between supply and demand. So, it is predicted that corrugated paper market prices may slowly climb with limited growth.
Corrugated paper prices fluctuated downwards in H1 of 2024, with a Y-O-Y decline of 7.87%.
In H1 of 2024, China’s corrugated paper market fluctuated downwards, which was similar to the forecast in SCI’s 2023-2024 China Corrugated Paper and Cardboard Paper Annual Report. Due to the slow recovery of China’s domestic demand and the continuous release of new capacity, plus the zero-tariff policy on imports, the corrugated paper market prices dropped more than expected, leading to a diverge in prediction. According to SCI, the market average price of China’s AA-grade 120g corrugated paper was RMB 2,751/mt in H1 of 2024, down 7.87% Y-O-Y. The highest price appeared in early January at RMB 2,918/mt, and the lowest price appeared in June at RMB 2,604/mt, with the high-low price spread at RMB 314/mt and fluctuation range at 10.76%.
In H1 of 2024, the imbalance between supply and demand in the corrugated paper market became apparent. On the supply side, the market supply was loose due to stable operating rates of large-sized paper mills, although some small and medium-sized paper mills had short-term shutdowns, the impact on the market was limited. As new capacity was gradually launched and imported paper continued to enjoy the zero-tariff policy, the supply side was relatively abundant. On the demand side, the slow demand recovery and insufficient effective demand led to a supply surplus, causing the paper price to fluctuate downwards. As shown in Chart 2, the lowest price was RMB 2,604/mt in early June, down 10.76% from early this year and RMB 99/mt Y-O-Y, and also at the lowest level of prices since 2019.
In H1 of 2024, corrugated paper prices fluctuated downwards amid higher supply pressure and weak cost support.
New capacity release and insufficient demand caused a sustained supply surplus.
In H1 of 2024, supply and demand for corrugated paper increased simultaneously. Although the demand growth was slightly higher than the supply growth, due to insufficient consumer confidence, orders were dispersed, causing most downstream packaging factories to maintain low inventory most of the time, with inventory concentrated in upstream paper mills, which inhibited the market pricing pace. Besides, the capacity and output of corrugated paper continued to grow, leading to a Y-O-Y increase in total supply. In H1, Shandong Renfeng Special Materials, Shanying Paper (Jilin), and Hebei HanGao Chemical put new units into operation, with a total annual capacity of 750kt/a. However, some paper mills switched production and experienced long-term shutdowns, so the overall capacity increased by 100kt/a. From the output perspective, given the net increase in corrugated paper capacity and the slightly higher operating rate of corrugated paper mills in general, the total output and monthly output in H1 of 2024 were both higher than that of the same period last year. The estimated output of corrugated paper in H1 was 11,200kt, up 9.80% Y-O-Y. In terms of the import volume, affected by the continuous decline in China’s domestic prices, the arbitrage space between domestic and foreign markets decreased, resulting in a slowdown in the growth rate of import volume. The import volume is estimated to increase by 3.45% Y-O-Y. Overall, the total supply of corrugated paper in China in H1 of 2024 is expected to grow by 6.29% Y-O-Y, and the industry still faces overcapacity pressure, which has a certain negative impact on corrugated paper prices.
In H1, the downstream consumption of corrugated paper in China increased Y-O-Y, and the export volume is expected to grow slightly in sync, which can be ignored due to very small volumes. The total demand growth for corrugated paper provided certain support for its price. From the end-user industries, the beverages, the four major household appliances, express delivery, and furniture industries all showed year-on-year growth, with a demand increase of 9.20% compared to last year. From the supply and demand data, demand increased slightly more than supply, but the orders of the end-user industries were scattered, and the downstream packaging plants were cautious about replenishing their inventory of corrugated paper, so the inventory pressure is concentrated on the upstream paper mills, which weakened paper mills’ bargaining power and slowed down paper mills’ pricing pace.
Costs and industry profits both dropped Y-O-Y.
The trends of cost and price of corrugated paper in H1 were basically consistent, and the price decline was greater than the decline in cost, resulting in a first increase and then a drop in industry profitability. The average gross profit margin of the corrugated paper industry in H1 was 11.14%, down 0.64 percentage points Y-O-Y. The main feedstock for the production of corrugated paper is OCC, and the price of OCC fell in H1, which had a bearish influence on the trend of corrugated paper prices. The corrugated paper market fluctuated downward in H1, with a Y-O-Y decline of 7.84%. The combined cost fell by 7.07%, among which, the main feedstock OCC prices dropped by 9.05%, and corn starch prices decreased by 1.66%. The decline in cost was smaller than the decline in paper prices, resulting in a decrease in the gross profit margin of the corrugated paper industry. From the monthly gross profit margin, the industry’s gross profit margin fell to 8.84% in May, hitting the lowest point within H1.
Looking ahead to H2 of 2024, demand for corrugated paper is expected to increase, but some new capacity is expected to be launched, so the supply pressure may still exist. Therefore, the market is likely to experience adjustments based on the purchasing pace, with a slow overall trend of moving upwards and limited upward price space.
From the supply perspective, there are new units with 820kt/a of capacity planned to be put into operation in H2, but due to profit and unit reasons, the start-up of some new units may be delayed. Supported by the domestic zero-tariff import policy, although the arbitrage space has narrowed, the import volume is projected to slightly increase driven by the peak consumption season. It is estimated that the total supply of corrugated paper in China will reach 16,560kt in H2, up 2.73% compared with H1.
From the demand perspective, the Mid-Autumn Festival, National Day, Double Eleven, New Year’s Day, and the Spring Festival are concentrated in H2. As the holidays approach, end orders will gradually be released, and the corrugated paper industry will gradually enter the consumption peak season. In addition, the macro policy guidance on domestic consumption, such as promoting large-scale equipment upgrading and consumer goods exchange-for-new policies, may gradually improve demand, and the consumption of corrugated paper will likely increase accordingly. It is estimated that the total demand in H2 will reach 13,060kt, an increase of 5.75% compared with H1, propping up the paper prices. Taking a comprehensive view, the increase in demand may be greater than the increase in supply in H2, and the imbalance between supply and demand may be alleviated to some extent.
From the cost perspective, the market price of the main feedstock OCC fluctuated upwards. In H2 of 2024, the consumption of OCC may decline, then rise and decrease again. This is mainly because September to November is the peak season for paper packaging demand, when paper mills’ finished paper sales may improve, and at the same time, the consumption of OCC will grow. As the market’s bullish sentiment heats up, some packaging stations may stockpile, which is not conducive to the increase in volumes of OCC delivered to paper mills. Overall, the OCC market may stage-wise present a supply-shortage situation, pushing OCC prices to fluctuate upwards. Therefore, the cost side may bolster the corrugated paper prices.
From a seasonal perspective, the price fluctuation of corrugated paper has seasonal characteristics. As seen from the following chart, January and February, and September to December have an over 50% possibility of price increase in a year. The market is likely to decline in July, which is still in the traditional consumption off-season for corrugated paper. As the Mid-Autumn Festival and National Day holidays approach, the corrugated paper market enters the traditional consumption peak season, and the probability of a price uptrend increases. Corrugated paper is used in a wide range of downstream industries, including food and beverages, household appliances, clothing and shoes, medicine, and express delivery, and because it involves various end industries, the seasonal trend of the industry weakened. In H2, there will probably be around 820kt/a newly added capacity, and the export orders have large uncertainties, which may lead to an imbalance in supply and demand in the corrugated paper market. The seasonal pattern may change, and it is expected that a counter-seasonal market trend will possibly occur in August and December.
In summary, SCI still holds the price trend forecast for H2 of 2024 in the SCI’s 2023-2024 China Corrugated Paper and Cardboard Paper Annual Report. The corrugated paper may experience staged adjustments in H2, with a slow upward trend overall. In H2 of 2024, the average ex-works price of China’s AA-grade 120g corrugated paper is expected to fluctuate within the range of RMB 2,620-2,720/mt, with an average price of RMB 2,673/mt, down 2.87% from H1 and 6.01% Y-O-Y. Based on seasonal patterns, the price peak of the year is likely to occur in December, while the low point may appear in May.
Risk reminder: The international environment is complex and severe, and the world economy lacks growth momentum. China’s domestic economy is recovering, but the recovery progress is slow. New capacity release and the volume and price of imports remain uncertain, and it is still necessary to pay attention to changes in domestic supply and demand.
All information provided by SCI is for reference only, which shall not be reproduced without permission.
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