Influenced by macroeconomic, industry policies, market supply and demand, China's box and corrugated market has been ups and downs in recent two years, and the market has gone up and down. Amid sharp fluctuations, there are also concerns about fiber gaps, new capacity and overseas investment prospects.

What is the change of packaging industry in the next few years from the perspective of the current industry? What are the coping strategies for the downstream two level and three tier factories? This article will explain the structural changes of the corrugated box industry from raw materials, raw paper production and marketing, hoping to enlighten the downstream carton processing industry.

1, the import of waste paper will be reduced, and the quality of finished paper will be reduced or settled.

In the past two years, the relevant policies on waste paper have been released very densely, and the control and control efforts are becoming more and more serious. And the relevant departments said that at the end of 2020, they would strive to achieve zero import of waste paper. Although the final result has not yet been finalized, the continuous decline of China's waste paper imports in the future is basically a consensus of the industry.

Figure 1. 2017-2019 monthly statistics of China's waste paper imports (1000 tons)

Source: Customs General Administration

According to customs data, the import volume of waste paper in the first 3 quarters of 2019 decreased by 29.5% compared with the same period last year. The impact of the decrease in the import of waste paper on the production of corrugated cardboard boxes in China is on the one hand in terms of fiber quantity, and on the other hand in fiber quality.

In the past 2012-2016 years, China's average annual import of waste paper exceeded 28 million tons. It is an important fiber source of recycled paper such as China's box board corrugated paper, grey bottom white board and newsprint. This part of the reduction in fiber quantity gap will be mainly supplemented by various ways, such as the import of regenerated pulp, the increase of national waste recovery, and the transfer of new capacity overseas. But in the 2018-2019 years, because of the decline of domestic corrugated board, gray bottom white board and newsprint, the influence of fiber quantity is not significant.

In the past two years, the reduction of waste paper imports has a more direct and significant impact on domestic paper mills, which is reflected in fiber quality. Because the "fresh" fiber content in the US waste is very high, and the national waste is not substitutable at this point, the quality of domestic recycled paper is largely dependent on the US waste. The decline in the quantity of imported waste paper from the US waste and other "fresh" fibers has led to a decline in the quality of recycled paper products. This problem is particularly serious in small and medium-sized paper mills.

2, a new way for China's paper enterprises: the upstream and downstream industries should be extended, and the overseas market will be extended.

Originally, China's box and corrugated packaging enterprises were basically based on the domestic market. Besides relying on the overseas raw materials market, production, marketing and other sectors were self-sufficient in China. However, there have been two notable changes in the layout of the industry in the past two years: extending to the upstream and downstream and expanding to the foreign market.

On the one hand, many enterprises in the industry not only actively expand the upstream raw material market, but also extend further to the downstream market. For example, the industry's leading paper company, Nine Dragons Paper, is investing more in wood pulp and regenerative pulp in the US and Malaysia, and buying down many packaging processing plants to further expand the layout of downstream industries. Compared with the mature and perfect upstream and downstream systems of paper enterprises in Europe and America, there is still huge room for Chinese paper enterprises to expand upstream and downstream.

In addition, in response to the adjustment of the import policy of waste paper, Chinese paper enterprises have increased their investment in overseas markets, especially in Southeast Asian market in recent two years. In the future, Southeast Asia will become one of the important production bases for Chinese paper enterprises.

List 1. Investment statistics of China's box and corrugated paper enterprises in other parts of Asia

Data source: enterprise public information

3, the new capacity dropped, a large number of cancelled or transferred.

By the end of the 3 quarter of 2019, the total capacity of corrugated board production in the Chinese market has increased by nearly 3 million tons this year. This figure is far from the new volume plan announced by the market. Even considering the volume of new capacity in the four quarter, we estimate that the total new capacity will be up to 5 million tons in the whole year, and the completion rate will be less than 50% of the planned volume. This means that more than half of the new capacity projects have been postponed or cancelled this year. This situation was very clear in 2018.

After 2016-2017 years of good market promotion, the market announced a large number of box and corrugated corrugated new capacity projects. However, as the market weakened in the late 2018, the new capacity dropped significantly. According to our incomplete statistics, there are still more than 11 million tons of corrugated board production capacity in China in 2020 and beyond. We anticipate that this part of the capacity will not be fully put into operation, and a considerable quantity may be cancelled or transferred to Southeast Asia.

Figure 2 Statistics on new capacity of corrugated board in China (10000 tons)

Source: Paper Industry News

4, the output of corrugated board is falling: for the first time in nearly ten years.

The corrugated board is the largest paper output in China, and the output of corrugated board has maintained a steady growth trend before 2018. In 2017, it became the high point of production and sales in recent ten years. In 2018, the output of box board corrugated paper was negative for the first time, and the operating rate of paper mills decreased significantly.

The negative growth of output in 2018 mainly considered the following factors: first, the slowdown in domestic demand and the emergence of Sino US trade frictions. Second, the import of waste paper is limited, the price of national waste is high, and the price of box board corrugated paper is high under the support of paper mill cost, so a large number of imported paper is poured into the Chinese market. Third, from the second half of 2018, corrugated board prices continued to decline, profits narrowed, and paper mill production enthusiasm was not high.

32010-2018 years supply and demand statistics of China's corrugated box corrugated paper

Data source: Fastmarkets RISI

5, the import of box and corrugated paper is increasing: import paper will be stabilized as one of the sources of China's wrapping paper.

China's imports of box and corrugated paper have increased significantly as domestic output has declined. In particular, corrugated paper imports amounted to 650 thousand tons in 2017, and about 1 million 110 thousand tons in 2018, while the import of corrugated paper in China did not exceed 100 thousand tons per year before 2017. For the box board, the import volume was basically maintained at 50-60 tons per year, and there was a significant increase in 2018.

In 2019, the import volume of box board was basically the same as that of 1-8 in the same period last year. The import volume of corrugated paper increased by 16.5% during the same period last year, and the growth rate slowed down.

According to our tracking of monthly imports of corrugated cardboard boxes, we believe that the changes in the import of corrugated boxes are highly correlated with the price fluctuation of China's box and corrugated paper in the first two months. China's market price rises, and then imports increase.

In the future, imported corrugated box or corrugated paper will be stabilized as one of the sourcing sources for China's packaging carton users.

42013-2019 years of import of corrugated boxes

Source: Customs General Administration

Overall, China's box and corrugated paper industry is undergoing a major transformation cycle in the next five years. From raw material channels, raw paper production and sales, they are faced with greater structural change pressure. For the raw paper industry, the concentration of the industry in the next five years is likely to increase significantly, and the medium and large paper enterprises will continue to enhance their voice in the upstream and downstream businesses. The changes in the upstream raw paper industry will have a significant impact on the downstream carton processing industry. How to improve industrial concentration, broaden the procurement channels of raw paper, provide integrated packaging services for end users, or will become the main issue facing downstream processing enterprises.