Packaging Paper Prices Backed by Policy Factors

SCI99

2020-02-24

Packaging Paper Prices Backed by Policy Factors

The packaging paper market has remained bullish since the market trading resumed. As of February 20, China’s average cardboard paper price was RMB 4,265/mt, up 1.27% M-O-M; the corrugated paper price was RMB 3,530/mt, up 1% M-O-M. In the short run, the price increase was caused by the low availability in waste paper supply because of the low resumption rate at paper recycling and packing stations and the obstructed regional transportation which added to the severity of the shortage. However, many participants believe the price increase merely signifies the upcoming prices surge in 2020.

In the long run, packaging paper prices are affected by two major policies. On the one hand, the ban on imported solid waste had restricted recycled pulp supply by putting the current waste paper import under a strict rationing system. On the other hand, the ban on non-biodegradable plastic products will promote paper packaging, which is a major substitute for the widely used plastic packaging.

The ban on waste paper import

On January 17, the Ministry of Ecology and Environment of China proclaimed during a press release that China would continue to implement the ban on imported waste and strive for a ‘zero’ waste import by the end of 2020. The packaging paper industry in China is heavily dependent on imported waste paper, and it will be affected by the following two aspects. First, the feedstock waste paper shortage will continue to expand. SCI suggests that if the waste paper import is to be 5-6 million mt in 2020, there will be a waste paper shortage of 6 million mt. Second, if the waste paper import decreases significantly, it will be more difficult for domestic packaging paper producers to acquire fine-quality long fiber, which will affect the production of high-end packaging paper in China.

In order to resolve the feedstock shortage, producers will have to increase the procurement of domestic waste, which is comparatively inferior in quality, and the quality of their products will be affected. Therefore, paper mills that have access to high-quality fiber will have an apparent advantage in market competition. Also, some are prompt in purchasing recycled pulp directly from overseas suppliers. In 2019, China has imported recycled 922.9kt of pulp. Despite that the number has increased by 205.01% from 2018, the imported recycled pulp will not be enough to make up for the 6 million mt shortage. Besides, participants suggest that the price of recycled pulp made from OCC 11 is over $330/mt and it is deemed as expensive by many producers. However, the recycled pulp of inferior quality cannot meet the production requirement of these producers. OnFebruary 21, pulp from recycled (waste) paper or paperboard under HS code 47062000 was included in the 2^nd batch tariff exemption list, and the previous20% import tariff on recycled pulp from the U.S. was lifted.

Policy on Plastic Products

China intends to ban non-biodegradable plastic bags, cutlery, and straws in all major cities by the end of 2020, and all sources of plastic garbage in developed coastal regions by the end of 2022. The plastic ban will extend to the entire country by the end of 2025.

With the policy being implemented, the demand for paper packaging will increase. The demand for corrugated paper and cardboard paper, as the materials for making paper boxes, will increase in the long run, and it will mend the supply-demand structure within the packaging paper industry. Moreover, as more obsolete capacity is eliminated, the industry’s concentration ratio will rise.

Paper is also a major substitute to plastic packaging in the field of daily consumables such as lunch boxes, shopping bags, paper cups and bowls. The consumption of white cardboard will be increasing is estimated to rise by 10% after the ban/restriction on waste paper is carried out.

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