China’s paper market seems to have gone crazy with runaway price increases on almost all grades and towards all-time heights! By early March, the list price of fully coated paper came close to RMB6,500/mt, rebounding +44% from May 2020 when the market was battered to the bottom by the pandemic! For tissue paper, the price topped RMB7,000/mt, gaining nearly 30% from 10 months ago. Most striking could be coated SBS board with price surging to RMB10,000/mt, more than +60% from May 2020 and hitting a record high in six years! For recycled fiber-based or kraft-top linerboard, the average price moved up nearly 20% to the RMB5,000/mt range, while medium climbing +13% over RMB4,200/mt. And newsprint, which consumes only recycled fiber in production and is becoming a sideline grade in the China market, price hitch-hikes the general market upturns from the start of the new year to reach as much as RMB5,300/mt!
While most people blaming the astounding rise of market pulp, which seems to have gone astray from its traditional business cycle and as a result drives up paper and board prices across the board, some industry professionals would broaden their view to include the following:
1. Recovery from 2019 when the market was hard-hit and price was driven to the bottom by the pandemic. Pending for official numbers from China Paper Association (CPA), industry analysts say among the 6,600 or so pulp and paper companies, more than 1,200 were at loss in 2020. Together with those others who managed to stay positive in the year, these negative performers need to plow back their losing grounds and grow earnings by joining and pushing for more sales at higher prices in 2021.
2. Significant price rise in crude oil which drives ocean freight rates alone to go up 200% or more. Coal, which is also a crucial source of energy to many pulp and paper mills in China, was tight in supply at a higher cost as well.
3. Surge of cost of raw materials from both domestic and overseas supplies. Not only market pulp, but other raw materials such as recovered paper and recycled pulp also remain tight in the market and their prices are changing weekly or even daily, ignoring the traditional “cycles”.
4. Producers have to bill their rising cost on employee safety protection, benefits, salary, etc. into paper and board sales prices.
5. Active demand in newsprint and fine paper in preparation for upcoming political events and high printing and promotion season as well as the strong increases in packaging paperboard, especially coated SBS board, for domestic and export packaging.
6. Industry consolidation enables top players better influence on the pricing of product sales.
The general expectation is that the market may return to rationality by the 3rd Quarter this year. Between now and then, however, there will be moderate up-and-down adjustments to clear the way for the positive performance of the industry for the year. Earnings of large companies, those pulp-paper integrated producers, in particular, will grow further and enable them to expand more aggressively!
