Paper and board prices stagnant or down in China as overcapacity, tightened credit bites

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Paper and board prices stagnant or down in China as overcapacity, tightened credit bites

August 01, 2013 - 18:33

SHANGHAI, Aug. 2, 2013 (PPI Asia) -China's paper and board (P&B) prices remained flat or dipped slightly in July as the country's slump deepened during the traditionally slack summer period.

Rapid expansion, fueled by heavy investments in the wake of the Chinese government's huge RMB 4 trillion ($652 million) stimulus program announced in late 2008, has taken a toll on the P&B industry, leading to overcapacity for almost every grade.

The ailing industry has taken a further hit after the Chinese leadership, formed by president Xi Jinping and premier Li Keqiang, stressed the need to restructure the economy towards more sustainable and somewhat slower growth.

"A major impact [on the P&B industry] is from the tightening of bank borrowing. The state-run banks have stepped up pressure on the debt-laden Chinese producers to repay their loans," observed a European firm, which owns production bases in China.

Mills that are government-owned, wholly or partly, account for the numerical majority of those in the P&B industry. They have borne the brunt of the newly adopted tightening.

"With easy money from bank borrowings, many of those companies are not managed with profit-driven objectives. They do not take downtime and usually dump their finished products on the domestic market at heavy discounts when under financial duress," the contact added.

What the source described pinpoints the main problem the Chinese industry is facing - falling prices stemming from fierce competition, wide price spreads, and a stagnant market marked by demand growing at a slower pace than supply.

Fine paper down:For coated fine paper (CFP), prices for the grade made with 100% chemical pulp in reels moved down a little to RMB 5,250-6,100/tonne from RMB 5,250-6,200/tonne in June.

While well-branded producers managed to sell their top-quality CFP at levels around the top end of the price range, other firms were willing to go to market with lower rates, below RMB 5,750/tonne.

Levels for low-end CFP manufactured with mixed chemical and mechanical pulp were stagnant at RMB 5,000-5,200/tonne.

In spite of the current slow sales, many producers are reluctant to cut prices, for CFP prices have lingered at low levels in the past two years and squeezed profit margins.

Mills resorted to offering discounts of up to RMB 200/tonne in July for big deals to attract buyers.

However, many traders were not very enthusiastic due to the sluggishness of the oversupplied market.

On the uncoated fine paper (UFP) front, the grade in reels manufactured with mixed wood and nonwood fiber was stagnant at RMB 5,100-5,400/tonne.

And higher-end UFP in reels was sold at RMB 5,500-6,450/tonne, sliding slightly from RMB 5,500-6,550/tonne.

Specifically, prices for UFP made with 100% chemical wood pulp were around 6,250-6,450/tonne.

In China, it is common for some UFP products to be furnished mainly with chemical pulp and a balance of mechanical pulp.

Prices for such popular UFP products were mostly around RMB 5,600-5,800/tonne in July.

On the supply side, MCC Yinhe Paper restarted a 200,000 tonne/yr UFP unit at its sole mill in Linqing city, Shandong province in late July.

The PM had suspended production in late June due to the firm's serious debt problems.

As with CFP, the UFP segment has also been greatly affected by the general market weakness.

Both producers and major traders are unsure if lower prices could bring obvious sales increases in the context of the economic slowdown.

In mid-July, the Chinese government released its economic data for the first half of this year, showing the Gross Domestic Product (GDP) growth rate in the second quarter decreased to 7.5% from 7.7% in Q1.

And it has been reported that the deceleration in growth indicated much more pressure in the second half of this year. There are also doubts on if the country could meet its GDP target of a 7.5% annual growth rate for 2013.

Board prices down:Most board grades surveyed saw falling prices in July.

Linerboard prices fell about RMB 50/tonne at the high end after big producers made price cuts in early July.

Levels for kraft-top liner in the basis weights of 110 g/m² and 120 g/m², for instance, dropped a little to RMB 3,100-3,600/tonne from RMB 3,100-3,650/tonne.

And popular kraft-top liner products from major mills were sold for RMB 3,250-3,600/tonne.

Prices for recycled fluting in the same basis weights remained unchanged at RMB 2,300-2,700/tonne in July although big producers tried to push up prices by RMB 50/tonne.

Levels for some high-strength recycled fluting brands made by big producers were around RMB 2,700/tonne.

In addition to the weak economy within the country, worsening exports also affected the consumption of packaging materials.

Board consumption in China has long been closely connected with exports, with firms selling products overseas often being major packaging users.

According to the latest trade data released by China Customs, exports in June dropped 3.1% from June 2012 to $174.32 billion, the biggest dip since October 2009.

Although the traditional prime season for board consumption is drawing near, it is unknown how prices will change, as supply will keep growing in the second half of the year.

Sources reported that Nine Dragons Paper (Holdings) plans to fire up two recycled linerboard machines with a combined capacity of 650,000 tonnes/yr in late August at a greenfield mill in Quanzhou city, Fujian province.

In Sichuan province, the firm will start up a 300,000 tonne/yr recycled fluting PM at its site in Leshan city by the end of this year.

On the cartonboard side, coated ivory board saw unchanged prices of RMB 5,250-6,300/tonne.

Levels for some major brands were around RMB 5,300-5,600/tonne, and some high-end brands were sold at around RMB 6,300/tonne and even higher.

Although APP China and Shandong Bohui Industry have recently started up 1.2 million tonne/yr and a 1 million tonne/yr coated ivory board machines, prices on the market have not fluctuated greatly.

On the one hand, the two PMs are gradually ramping up. On the other hand, sources reported that APP China has tried to optimize its product portfolio in China in advance to balance its market supply.

In addition to increasing coated ivory board exports, the firm also raised art board production at its site in Ningbo city, Zhejiang province, which houses a 1 million tonne/yr coated ivory board PM.

Grayback coated duplex board prices declined to RMB 3,300-4,600/tonne from RMB 3,350-4,600/tonne.

The erosion could be ascribed to the price cuts of around RMB 50/tonne by mills in Fuyang city, Zhejiang province, which is a hub for the production of grayback coated duplex board.

Like previous years, mills there have started taking 10-15 days downtime every month to save energy.

It is standard in China for manufacturing plants to slow production in summer to ensure that residents have enough power supply.

Over the past two years, the measure has also helped board plants in Fuyang deal with low demand and high inventories.