Paper market in China

21Nov2014

Rapid growth and intermittent slowdown in paper industry

The paper industry in China hasn’t changed much and has barely been affected by its industrial reform and open-up of the 1980s and early 1990s. According to statistics shown in 1999, total output volume of paper and paper board in the paper market in China that year was only 29 million tons.

However, the reform of trade policy and joining in WTO brought a significant effect on China’s paper industry. Total output volume of paper and paper board reached 100 million tons in 2010 according to the same data source. The opening of international markets permitted rapid expansion in timber and pulp imports and the raw wood imports remain a threefold increase over the past decade, which made paper manufacturers become more and more rely on wood fiber. Then the paper market in China has begun to be specialized in printing and writing, packaging and sanitary papers. Paper manufacturers equipped with larger capacity tend to take use of wood fiber as their principal raw materials, while paper manufacturers of smaller operation are dependent on non-wood fibers (largely agricultural residues), and they are very environmentally intrusive. In fact, China’s paper industry depends more on non-wood fiber than wood fibers at a ratio of 3 to 1.

Over the past decades, Chinese economy has grown by around 10% annually on average. This undoubtedly has fueled strong demand for raw materials to feed into a fast growing manufacturing sector. The demand is met from both domestic and imported sources. In year 2012, China consumed around 70 million tons of recovered paper, among which 30.5 million tons was imported. Based on market research from China Paper Association and RISI, China’s production of paper and paper board increased in 2012 to reach 92 million tons, and following its further report, there has been continuous growth in 2010. As for production of packaging, which accounts for 60% of production and printing and writing papers, which accounts for about 24% of production, they keep on rise, whereas newsprint production, which accounts for 6% of total volume, had been growing in a relatively slow pace since 2007 and started to fall in 2010. It is understandable since international competitors have a technology advantage over domestic manufacturers in the long fibers required for newsprint production.

Could digital rise and environmental issues be challenges for paper market in China?

Could the picture of strong demand of raw materials and rising output be possibly affected or changed now that by global and China’s economic slowdown? Or could paper consumption stay rising in front of digital technology and new concept of “paperless office”? Or could paper production survive resource shortage, Chinese governments’ shut down due to low level product or serious environmental pollution? Well, to maintain a cooler yet stable economic environment, Chinese government has been devoted to drive economy booming by large-scale urbanization, investing on transportation, infrastructure and house building, which will definitely stabilize paper consumption demand if not increase; besides, Chinese civilian’s disposable income increases over the years which will promote the demand of paper in industrial packaging, office work paper and paper of daily life use, associating with increasing demand for hygiene, consumer products like toilet tissue, hand towels and cleaning wipes. When it comes to the advance of digital technology, it has led to a drop in consumption of newsprint in other regions such as United States or Europe. Less than half of the wood pulp produced in 2013 was made into printing, writing and newsprint paper, the rest was made into other products like toilet paper in China, cardboard packaging and paper towels, and demand for these products are still on the rise in emerging market. Also market research data shows that even overshadowed by new technology, China has led an increase in demand. At present, it occupies about 25% of global paper demand.
As for resource shortage, capability closure for the sake of high efficiency and environmental protection, the paper market in China might be reshaped and restructured through government policies. Chinese authority has announced that it may close approximately 4.32 million tpa of pulp , paper and board capacity due to environmental concern. It also announced a crackdown limit on facilities whose waste water has a chemical oxygen demand level of more than 150 mg per liter. Paper manufacturers who violate this limit would be forced to close down. This policy would result to the shutdown of 4 million tpa of paper, board and nonwood pulp capability. When looking into the policy, the closure would mainly affect mostly inefficient small and medium sized manufactures producing low-grade paper and board, using nonwood pulp and recovered fiber all of which are not only less efficient but also not environmentally friendly. This crackdown would indeed introduce consolidation to printing/writing paper, carton board sectors and enhance performance capability in the long run.

Paper market in China remains promising

Paper market in China continues its upturn spiral and paper industry players stay positive. Several Chinese paper makers are set to expand their capability and modernize facilities. Overseas paper makers are contracted to cooperate with local paper makers by facilitating production units or providing new technology. With more capital joining in the paper market in China, advanced technology and removal of redundancy, paper industry surely promises a brighter future.
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