Raw Paper Prices Surged in H1 2017 — Paper Product Enterprises Seize Opportunities Amid Industrial Green Reform

Release Date: September 22, 2017

1. Overall Market Status of China’s Paper Industry in 2017

1.1 Sustained Raw Paper Price Hike Drives Sharp Profit Growth of Paper Mills

China’s various base paper prices entered a bull cycle starting from 2016, with corrugated paper, containerboard and white board paper recording the steepest growth. For corrugated paper, after a short correction in the first half of 2017 following the price surge in 2016, factory prices rebounded strongly in the second half, rising from 3,500 RMB/ton to 4,300 RMB/ton, representing a 22.8% increase.

The rising paper prices greatly boosted manufacturers’ profitability. Semi-annual financial reports of listed paper companies in 2017 showed all four leading paper firms achieved over 20% revenue growth, with explosive net profit expansion. Bohui Paper’s net profit even surged by 1,448% year-on-year.

1.2 Geographically Concentrated Production Capacity, Eastern China as Core Base

According to the report 2018-2023 China Paper Industry Development Status & Future Trend Forecast, paper and paperboard output was highly concentrated in eastern regions in 2016, accounting for 75.1% of national total; central regions took up 16.2%, and western regions only 8.7%.

16 provinces and cities including Shandong, Guangdong, Zhejiang, Jiangsu and Fujian recorded annual output exceeding 1 million tons, with a combined total output of 103.7 million tons, covering 95.53% of national volume, forming prominent industrial cluster advantages.

1.3 Stable Production & Consumption Structure: Packaging & Household Paper Dominate

In terms of output and consumption, four categories — containerboard, corrugated medium, uncoated printing & writing paper and household paper — each occupied more than 10% share. Together they accounted for 71.39% of total output and 72.84% of total consumption, forming the core demand pillars of the whole industry.

2. Four Root Causes of the Sharp Raw Paper Price Surge

2.1 Shrinking Waste Paper Supply & Tighter Import Policies

China’s papermaking raw materials consist of pulp and waste paper, with imported waste paper covering 35% of total raw material demand. Waste paper imports dropped from 30 million tons in 2012 to 28.49 million tons in 2016, down 5.1%.

The Chinese government launched the “Green Fence Operation” to strictly block foreign garbage imports. In 2017, China formally notified the WTO of its plan to stop receiving overseas solid waste by the end of the year, and phase out imports of domestically recyclable solid waste by 2019. The number of enterprises qualified for waste paper import shrank from 310 in 2012 to only 150 in 2016. The raw material supply gap directly pushed up prices of pulp and base paper.

2.2 Explosive Express Delivery Business Boosts Packaging Paper Demand

Domestic paper product consumption maintained steady growth, reaching 104 million tons in 2016, up 0.5% year-on-year. The key growth driver came from the booming logistics & express sector: China handled 31.35 billion parcels in 2016, a 51.7% year-on-year jump. Calculated at 200g paper per parcel, 40 billion parcels in 2017 would consume 8 million tons of paper, accounting for 8% of annual total paper consumption, continuously expanding demand for packaging paper.

2.3 Supply-side Reform Accelerates Industry Consolidation

1. Shrinking enterprise volume: The number of above-scale papermaking factories fell from 3,500 in 2012 to 2,800 in 2016, a 20% decline.

2. Rising share of medium & large manufacturers: The proportion of small mills dropped from 89.62% to 80.15%, while medium & large enterprises kept expanding.

3. Profit concentration to leaders: Medium & large firms’ total profit share rose from 64.26% to 68.53%.

Large-scale paper mills hold clear advantages in production capacity, technology, environmental equipment and risk resistance, lifting the overall production and environmental standards of the whole industry.

2.4 Rising Comprehensive Production & Logistics Costs

Higher prices of coal and other energy sources, together with the national over-limit transport policy implemented in September 2016, added about 60 RMB per ton to waste paper transportation costs. The full-chain cost increase was ultimately passed on to finished paper prices.

3. Medium & Long-Term Development Outlook for the Paper Industry

1. Ample room for paper consumption growth
China’s per capita paper consumption stood at 75kg in 2016, while developed Western economies recorded over 150kg per capita, leaving massive long-term growth potential for domestic paper demand.

2. Stricter environmental supervision keeps paper prices at high levels
National energy conservation, emission reduction and air pollution control policies were fully rolled out, mandating ultra-low emission upgrades for coal-fired power plants, pushing up environmental transformation costs for paper manufacturers. The upward price trend of raw paper would continue in the short run.

3. Optimized regional industrial layout across six major zones
China’s paper industry is divided into six production regions: Middle-Lower Yangtze, Huanghuaihai, South China Coastal, Northeast, Southwest and Northwest. The 13th Five-Year Plan aimed to rationalize regional capacity distribution and achieve balanced industrial development.

Industry Conclusion

Environmental inspections and tightened waste paper import controls drive structural transformation of the paper sector, with raw paper prices set to stay high in the short term. In the long run, enterprises must upgrade production technology, increase investment in eco-friendly techniques and follow low-carbon sustainable routes to boost comprehensive competitiveness and balance economic benefits with environmental protection.

Corporate Statement: Ride the Green Transformation Wave of Paper Industry — YIWU QIANYI DAILY NECESSITIES CO., LTD. Captures Industrial Reform Opportunities

Amid industrial changes including tight raw material supply, stricter environmental rules and the nationwide plastic-to-paper shift, YIWU QIANYI DAILY NECESSITIES CO., LTD. accurately tracks supply & demand shifts in the paper market, proactively follows the global green development trend, and integrates low-carbon, circular and sustainable eco concepts into our full industrial chain covering raw material sourcing, product R&D, manufacturing and global foreign trade supply.

Benefiting from Yiwu’s complete paper product industrial cluster, our company develops a full portfolio of eco-friendly paper goods: corrugated packaging, food-grade coated paper, kraft paper bags, paper bowls and biodegradable paper straws. To tackle industry pain points such as restricted waste paper imports and volatile base paper prices, we maintain stable long-term supply channels for qualified recycled eco base paper, optimize lightweight product craftsmanship to cut paper consumption per unit, and help global clients mitigate cost pressure caused by raw material inflation.

We fully comply with national environmental policies, phasing out all production lines for non-degradable disposable plastic products, and increasing R&D investment in food-safe eco paper materials. We upgrade coating technology for better waterproof & oil-proof performance, maximizing recyclability and biodegradability without sacrificing product usability. Dust-free standardized production workshops are built to strictly control energy consumption and pollutant discharge, aligning with global plastic reduction and carbon neutrality targets.

We launch tiered product portfolios catering to catering shops, e-commerce logistics and cross-border foreign trade buyers, balancing procurement budget with international environmental compliance standards. Our eco paper products are exported to Europe, America, Southeast Asia, the Middle East and other regions worldwide. Moving forward, YIWU QIANYI DAILY NECESSITIES CO., LTD. will keep deepening the eco-friendly paper product sector, continuously optimize production technology and environmental management, follow the structural upgrading pace of the paper industry, and cooperate with global partners to build a low-carbon circular paper industrial ecosystem, sharing long-term growth dividends of the green packaging market.