(www.chinapaperonline.com) The across-the-board price increases starting from the 3rd week of February appeared to lose momentum in the China market. By mid-March, price began to drop from the peak, giving up several hundred RMB per metric ton gains in either recovered paper or containerboard!

On the recovered paper sector, the short-lived price rise was the result of low stocks at balers all over the country whose available deliveries were materials collected and sorted prior to the Chinese New Year holiday break. Balers were hardly able to collect and sort during and shortly after the holiday when virtually all business in the country was grounded by COVID-19. The gradual resumption in collection and shipment from the 1st week of March did allow balers to rebuild stocks and eased market concerns. Now that the threat of COVID-19 reduces, more people in China see improvement in waste paper collection, especially from the residential community which contributes to a significant portion of China’s recovered paper generation. As long as commercial and residential generation reactivates from March, supply of China’s domestically baled recovered paper will surely rise from the 2nd Quarter. Long-term, however, the question remains that how much China’s domestic supply of RCP can support its paper industry which demands more than 60 million metric tons of RCP each year!

For paper and board production sector, containerboard production in particular, things are somewhat complicated. While consuming recycled fiber in general, large paper and board makers in the country apparently have an edge over small competitors. In containerboard production, for example, fiber yield of per metric ton OCC is around 90%. If the delivered price of locally baled OCC is RMB2,000 per metric ton, the fiber cost will be RMB2,222 in the production of per metric ton containerboard. But large mills have the privileges to import OCC from overseas. At the current delivered price of RMB1,000 per metric tons of DOCC from overseas to China in average, large containerboard makers in China are able to blend their imports with locally baled OCC and lower the fiber cost of containerboard to about RMB1,700 per metric ton. Given labor, energy and environmental protection costs staying the same for all mills in the industry, large producers are able to save as much as RMB500 per metric ton in fiber cost over the small containerboard producers! It won’t be a surprise therefore if large containerboard producers in China continue their aggressive purchase of domestically baled OCC at a premium price, which will make small producers difficult to follow and may force many of them drop out of competition after some time.

On top of the above, market analysts are now closely watching the performance of China’s currency over US dollar and other major currencies as well as commodity exports from March. Appreciation of Chinese currency may discourage the recovery of country’s exports under the attacks of COVID-19, which is now rampaging worldwide! Inactive exports may add burden to the export-oriented packaging industry and subsequently hurt the country’s paper/board and RCP markets in the rest of the year.