Friday, June 24, 2022

Strong Consumption Insufficient to Boost Packaging Paper Demand

"Before and after the China '618' shopping festival used to usher in a wave of strong demand for paper packaging in the past." Mr. Shi, the head of a company specializing in paper packaging in Zibo, Shandong, told the "Securities Daily" reporter. But in fact, the recent trend of the packaging paper industry, especially the white cardboard market, is weak.

"The overall market demand is insufficient, and the industry is also in the off-season, so the upward trend is weak." Industry analyst Kong Xiangfen told the "Securities Daily" reporter. Although the pulp market has been loosened at a high level recently, the overall cost is still at a high level, so large-scale enterprises will continue to hold on to the paper price and market. In the short term, the space for the white cardboard market to continue to decline is relatively limited.

Paper Packaging

The reporter learned from the leading white cardboard paper companies such as Bohui Paper that after the price increase of 200 yuan/ton from June 15, the white cardboard scale enterprises will raise the paper price by 300 yuan/ton from July 1.

In the interview, a number of paper packaging business people said that the pressure is huge at present, the industry is still at the bottom, and they are waiting for the traditional peak season in the second half of the year to bring the dawn of market recovery.

Packaging demand recovery is slow

Mr. Shi told the "Securities Daily" reporter that the "peak" of orders this year has not yet come. Mr. Shi's packaging company is still consuming the stock of white cardboard and whiteboard for packaging replenished in May, and he is not in a hurry to place new orders with distributors.

The same situation exists more or less in several paper packaging companies interviewed. "Affected by multiple factors this year, the packaging industry has also suffered a lot. Especially in May, the industry's pessimism was strong." Mr. Shi said.

The terminal demand is sluggish. For the paper industry in the middle link, it can be described as a dilemma due to the high volatility of the upstream raw material pulp market at the same time. "The operation of paper mills has also been differentiated. For example, large-scale white cardboard companies have successively issued price increase notices at the beginning of this month, and recently announced that they will continue to increase prices from July 1st. The situation will adjust the sales strategy in a timely manner." Kong Xiangfen introduced that, for example, the small and medium-sized papermaking enterprises in Henan have reduced their prices by 100 yuan/ton since the end of May, and continued to reduce their prices by 100 yuan/ton in early June.

Both the packaging industry and the paper industry are looking forward to the "dawn" of the market demand recovery. Since the release of the State Council's notice on printing and distributing a package of policy measures to stabilize the economy at the end of May, many places have introduced measures to stabilize the economy. Against this background, domestic consumption rebounded slightly.

Judging from the latest total retail sales of consumer goods released by the National Bureau of Statistics, in May, it fell by 6.7% year-on-year, the decline narrowed slightly, and the month-on-month growth was positive. "Domestic consumption in June remained generally positive, but the recovery of market circulation and activity still needs time to advance. Some downstream operations in the Yangtze River Delta region are insufficient, and the packaging consumption of related industries is limited." Kong Xiangfen said.

Fortunately, there is support from exports. Recently, white cardboard enterprises have generally maintained normal operation, and some enterprises' export volume has remained at a relatively high level. At present, the overall export accounts for about 1/3 of the output, which relieves the pressure on domestic sales to a certain extent.

Short-term disturbances in packaging industry do not change long-term high prosperity

White cardboard is widely used in the packaging of mass consumer goods. Although it is currently disturbed by the cost and demand side, the industry generally believes that with the steady development of my country's consumer industry, white cardboard has a good development prospect.

The latest research report of Bank of China Securities believes that the main downstream industries of white cardboard, such as pharmaceutical packaging, cigarette packaging, food and beverage packaging, cosmetics and other high-end packaging, have relatively rigid demands or benefit from factors such as consumption upgrades. It will lead to an increase in the consumption of white cardboard. At the same time, the new plastic restriction order and the removal of whiteboard production capacity will also generate demand for whiteboard replacement.

Against the background of this expectation, leading companies in the industry are accelerating capacity expansion. Zhuochuang Information said that white cardboard is expected to usher in intensive investment in the next two years, of which 1.22 million tons of new white cardboard production capacity is expected in 2022, and 6.88 million tons of new white cardboard production capacity is expected in 2023, totaling 8.1 million tons. . At the same time, the industry concentration is also showing an upward trend. Because new white cardboard production capacity requires high investment, most of the new production capacity is invested by leading companies. For example, of the total 8.1 million tons of new white cardboard production capacity in the next two years, Jinguang Paper and Bohui Paper will put a total of 3.42 million tons, accounting for 42.2%.

Of course, there may be a short-term imbalance between supply and demand given the possibility of adding a lot of capacity in the next two years. However, according to the analysis of the Bank of China Securities research report, white cardboard is still expected to ensure a good development after the intensive production capacity is put into operation. In the context of continuous efforts, white cardboard is expected to maintain long-term economic development.

Regarding the situation that paper companies are raising prices to support the market, Fan Guiwen, general manager of Kumaila (China) Co., Ltd., told the "Securities Daily" reporter that this actually reflects the support brought by the growth of market demand from the side. Bank of China Securities also stated that as the impact of the epidemic further weakens and the peak season of the superimposed industry is approaching, it is expected that demand will usher in a substantial rebound, which will form a strong support for the price of white cardboard.

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Strong Consumption Insufficient to Boost Packaging Paper Demand

"Before and after the China '618' shopping festival used to usher in a wave of strong demand for paper packaging in the past.&q...