The price of paper has been falling, and the paper enterprises will continue to shut down to speed up the clearance of backward production capacity in the industry

March 15, 2023

According to the latest shutdown plan released by Jiulong Paper recently, the company's two major paper machines in Quanzhou base will be shut down for maintenance from this week. According to the design capacity, it is expected to reduce the production of corrugated cardboard by 15000 tons. Before Quanzhou Jiulong issued the shutdown letter this time, Dongguan Jiulong and Chongqing Jiulong had carried out the rotation shutdown, and it is expected that the total output of these two bases will be reduced by nearly 146000 tons in February and March.
The leading paper enterprises have taken the measures of shutdown to deal with the price of Packaging Paper, which mainly consists of corrugated cardboard, has been falling since 2023.

Xu Ling, an analyst at Zhuochuang Information, told the Securities Daily that since this year, on the one hand, the demand recovery has been less than expected, with the impact of import policy superimposed, the contradiction between supply and demand in the market has gradually become prominent, and on the other hand, the cost has also been declining. "From the perspective of price, the price level of corrugated paper in 2023 is the lowest in the past five years." Xu Ling said that it is expected that the supply and demand of corrugated paper market in 2023 will still be dominated by game.

The price hit a new low in five years

Since 2023, the packaging paper market has been falling, and the price of corrugated box board has continued to decline.

According to the monitoring data of Zhuochuang Information, as of March 8, the market price of AA-grade corrugated paper in China was 3084 yuan/ton, 175 yuan/ton lower than the price at the end of 2022, a year-on-year drop of 18.24%, the lowest price in the past five years.

"The price trend of corrugated paper since this year is really different from that of previous years." Xu Ling said that from 2018 to the first ten days of March 2023, the price trend of corrugated paper showed a steady upward trend from January to early March, especially after the Spring Festival, except for the slow recovery of demand in 2022, when the price fluctuated and moved downward after a small rise.

"Generally, after the Spring Festival, most paper mills have price increase plans. On the one hand, it is to boost market confidence, and on the other hand, the supply-demand relationship has improved slightly after the Spring Festival." Xu Ling said, because there is also a process of logistics recovery after the Spring Festival, the shortage of raw material waste paper will often occur for a short time, and the cost will rise, which will also have some support for the price of corrugated paper.

However, since this year, major enterprises in the industry have seen rare cases of price reduction and production reduction. For the reasons, the insiders and analysts interviewed by the reporter can be summarized into three points.

The first is the adjustment of import paper tariff policy. From January 1, 2023, the state began to implement zero tariff on recycled cardboard and corrugated base paper. Affected by this, the enthusiasm of domestic imports has improved. "The negative impact of the previous policy is still on the policy side. Since the end of February, imported corrugated paper with new orders this year has gradually arrived in Hong Kong, and the game between domestic base paper and imported paper will become more obvious." Xu Ling said that the impact of the previous policy has also gradually shifted to the fundamental side.

The second is the slow recovery of demand. In this point, it is different from many people's feelings. Mr. Feng, the person in charge of a packaging paper dealer in Jinan, told the Securities Daily, "Although it is obviously felt that the market fireworks are much stronger after the Spring Festival, from the stock and order situation of the downstream packaging plants, the demand recovery did not meet expectations." Mr. Feng said. Xu Ling also said that although terminal consumption was gradually recovering after the holiday, the overall recovery rate was slow, and the regional recovery was slightly different.

The third reason is that the price of waste paper continues to decline, and the support of cost is weakened. The person in charge of a waste paper recycling and packaging station in Shandong told the reporter that the recycling price of waste paper has been decreasing slightly recently. "This year, it has dropped seven or eight times, each time from 30 yuan to 50 yuan (per ton). However, the packaging station can only significantly reduce the recycling price." The person in charge said.

According to the monitoring data of Zhuochuang Information, as of March 8, the average market price of waste yellow paper was 1576 yuan/ton, which was 343 yuan/ton lower than the price at the end of 2022, with a year-on-year decrease of 29%, which was also the lowest price in the past five years.

Backward production capacity or accelerated liquidation

When can the depressed packaging paper market get out of trouble? In this regard, the industry generally believes that the painful period of the packaging paper industry, which is mainly composed of corrugated box paper, has not yet ended, and the industry's supply and demand rebalancing may still have a long way to go.

In the short term, Li Li, an analyst at Zhuochuang Information, told the Securities Daily that March was not the peak season for the consumption of cardboard and corrugated paper, so the market may continue its downward trend. However, Li Li believes that as the paper price continues to fall and the scope of paper mill downtime and maintenance increases, the falling space may be narrowed.

Mr. Feng, the aforementioned dealer, also told the reporter that in order to offset the impact of foreign paper and imported paper, the paper mills in some regions control the production capacity and reduce the price of local base paper through reasonable startup and shutdown, and also protect the local downstream market.

As for the overall industry situation in 2023, Xu Ling said that there was still a plan to increase the production capacity of 2.05 million tons in the corrugated paper market in 2023, so there was still great pressure on the overall supply side. "On the demand side, in the context of global economic inflation, and with many uncertainties in the international market, the overall recovery of domestic demand still needs a period of time, and it is expected that the price of the corrugated paper market will remain weak in 2023." Xu Ling said.

Huatai Securities believes that the industry profit margin is expected to remain at a low level in the first quarter of this year because the industry pain period has not ended. In addition, on the whole, large enterprises in the industry are improving the control of cost factors such as fiber raw materials to better meet the challenges of the market. With the fall of energy prices and the continuous launch of fiber production capacity, Huatai Securities expects that the advantages of large enterprises in the fields of scale advantages, self-owned power plants and raw material cost control are expected to be strengthened, and the competitiveness of small and medium-sized enterprises is expected to be further improved. In the future, the clearance of small and medium-sized enterprises and backward production capacity in the industry may be more thorough than before.

Author:

Mr. Ma Yanfeng

E-mail:

sandy@zhongzhi.cn

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8615200088110