【SCI View】APP to Gain Control Over Bohui Paper

SCI99

2020-01-02

APP to Gain Control Over Bohui Paper

Background: On December 31, 2019, Shandong Bohui Paper Industries released an announcement indicating that the company’s actual controller, Mr. Yang Yanliang, signed a letter of intent for transferring all of the Bohui Group equity held by Mr. Yang to Sinar Mas Group-APP (China). BohuiGroup is the controlling shareholder of Bohui Paper Industries who holds 28.84% of the total equity. Whereas Ningbo Asia Paper Tube & Carton Box Company, the sole subsidiary of Sinar Mas Group-APP (China), had acquired 20% of the Bohui Paper equity before. As a result, the actualcontroller of Shandong Bohui Paper Industries will change after the equit y transfer is complete.

Impact 1: New capacity release in the white cardboard industry will be boosted.

As reflected in the chart above, most of the white cardboard capacity in China was owned by Sinar Mas-APP, and its capacity accounted for 37% of the total. The proportions of that at Shandong Bohui Paper Industries and Chenming Paper were 22% and 21% respectively. After the equity transfer takes place, the proportion of Sinar Mas-APP will reach 59% in the white cardboard industry. After the white cardboard capacity at Guangxi Jingui Pulp & Paper (an AAP subsidiary) becomes operational in 2021, its proportion will reach 66%. Thus, Sinar Mas-APP has established an unshakable leader presence in the white cardboard market. The increasing industry concentration ratio will enhance the pricing power of the leading companies. Also, the profitability of white cardboard production will also increase, stimulating new white cardboard capacity from other players. Therefore, the white cardboard capacity expansion may accelerate in China, which will further intensify the supply-demand contradiction.

Impact 2: Price increases of substitute or upstream products are anticipated.

After the equity transfer, aside from the price increase within the white cardboard industry, bullish anticipations at producers and distributors of substitute products such as white board paper or Kraft liner board will also be strengthened. As the white board paper capacity at Fuyang, the white board paper production center in China, are expected to be reduced greatly, a bullish anticipation is building up in the white board paper market after the Spring Festival.

Since mid-2019, the wood pulp price has been sluggish, and the rise in white cardboard price did not apparently boost the wood pulp price trend. However, as the white cardboard capacity increases, the wood pulp consumption will increase in the future, bolstering the wood pulp price.

Impact 3: Downstream users may seek alternatives or reduce consumption of white cardboard.

In fact, during November and December of 2019, the white cardboard price increase was less than anticipated. The price offered to end users was around RMB 5,700-5,900/mt, and it was difficult to implement. In addition, as paper mills continued to raise their order-taking prices, some buyers started to lay their eyes on imported alternatives. In 2020, imported resources will have obvious advantages in price as domestic paper mills continue targeting higher prices. In addition, some industry may reduce the application of white cardboard and seek other packaging materials instead.

In conclusion, dispute the fact that the white cardboard industry concentration rate will increase in 2020, the price increase is still restricted by certain factors, and the market price white cardboard price is not likely to rise beyond RMB 7,000/mt.

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