(www.chinapaperonline.com) Market turmoil in China in 2018 left many independent packaging paperboard converters in the country in a tough position with millions of dollars loss in earnings! In barely two years, the good days were gone without huge orders from corrugated box makers on the one hand and ample supplies of paperboard from the mills on the other.
While economic slowdown in the country being blamed in general, inconsistent orders from box plants vs. lack of pricing flexibility, especially large independent converters with high capital investment through years of industry consolidation, were the particular scene of the business. Unlike paperboard mills who could take a downtime after gear-up running to complete a bunch of orders, or box plants who could run on-and-off based on orders, corrugated sheeters, large ones in particular, could hardly afford to inconsecutive runs. More challenging for the sheeters were that in China, their products were semi-finished, leaving them in a vulnerable position in dealing with the box makers. And the emergence of multi-million ton paperboard producers with ample integrated converting and box making capacity had invaded and captured much of the earnings of the independents! In addition to tier-one paperboard producers such as Nine Dragons and Shanying Paper and converting/box making operations built by off-shore paperboard companies, a growing number of tier-two Chinese companies had added their own converting operations to expand their earnings. Under reasonable estimates, the combined converting and box making activities of these companies already captured 1/3 of the business in China in 2018. If economic environment continues challenging in 2019, these more resourceful companies will likely grow their market share more aggressively than small and independent sheeters and box plants.
To deal with the burden caused by significant capital investment and requirement of relatively high paperboard stocks in sheeting operations and relatively long accounts receivables and hectic customer services in the box making business and to jointly gain a better position against market changes, more industry players are now calling for stronger coalition and/or alliance of converting and box making industries. Indeed, the two sectors are inter-dependent in a community of destiny. A good coalition and/or alliance will improve their future position in the market and the country’s packaging paperboard business as whole.