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Worries Remain Amid Market Upbeat
2020-07-21 09:11chinapaperonline.com
China’s industrial packaging paperboard market is now flying, after experiencing nearly two quarters of weakness that has delayed the arrivals of traditional high season. Improved economic performance of the country from the 2nd Quarter as well as price increases of domestically baled recovered paper all fueled up rebounds of containerboard production and conversion markets.

In barely two weeks from the start of July, price of containerboard from almost all mainstream producers gained at least RMB200/mt, while those of industry leaders – Nine Dragons, Lee & Man and Shanying Paper – surging as much as RMB400/mt after busy adjustments. Downstream, converters in Eastern and Southern China lost no time in adding RMB0.05-0.20/sq.m, primarily depending on the walls of converted products, to pass the rising board cost to the box consumers.

While hailing the long-waited rally, market analysts remain worried as whether the current upbeat in board production and conversion business is solid enough to sustain looming adverse events. On board production, the key concerns included:
1) Will board demand remain active? Different from the past, domestic box orders are now more critical than export box orders under the government’s new thrust to boost domestic economic revival and consumption to combat growing challenges from the outside world that threatens China’s exports.
2) Will the announced machine downtimes by large players be powerful and long enough to keep market tight and to curb impacts of new capacity start-ups and free action on price of mid-to-small producers?
3) Will fiber supply, mostly recovered paper from domestic collection, be steady and allow profit margins in board production?

There appear more issues on the conversion industry, which is much diverse and vulnerable to adverse business environment. Except a few that are integrated with board production and capable of completing the whole process of conversion, most converters in China are relatively small operators engaging in one or two processes in corrugating, sheeting, die cutting, printing, gluing/nailing, etc. Among the many issues encountered by the industry, some are common and specific to the converters:
1) Unable to upgrade the whole converting process, including splicer, double slitting, cross cutting and output stacking sections to resolve problems such as board wrinkles and warpage and reduce board waste in printing and die cutting.
2) Difficulty in finding right and reliable professional team to do the upgrades.
3) Lack of capable management team to make operation cost effective.
4) Poor cash flow of small businesses makes them hard to endure market changes.

More market analysts believe that market developments in the next six months will help answer or resolve some of the above questions/issues. If market sinks, many board producers and converters will suffer. And a number of them, especially in the converting sector, may not be able to keep their heads above water anymore.

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