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Can Industry Recover Lost Grounds?
2020-08-18 09:20chinapaperonline.com
China’s paper and board production fell to 57.58 million metric tons in the first half of 2020, down -4.8% from the same period of 2019, regardless of a +4.1% output revival to 11.11 million metric tons in June, according to latest reports from China’s Ministry of Industry and Information Technology.

Though not surprising to market analysts in view of the protracted pandemic, this was the first time that industry performance turned negative from decades of positive show. Official reports also revealed that industry revenue slipped -9.6% to RMB566.32 billion, bringing industry earning growth rate to a record low at +0.1%, or RMB26.87 billion during the period. Excluding price factors, value of industry inventories at end-June was estimated to rise +9.5% from a year ago, though down -3.1% from the previous month.

Not only small entities, but also large industry conglomerates have sought financial aid or subsidies from the government and local banks in dealing with mounting pressure caused by the pandemic. Chenming Paper, one of the top-10 paper companies in China for example, used RMB767 million government subsidies to cover the huge increase in unexpected business expenses! Without such assistance, Chenming Paper could hardly be able to run 1.66 million metric tons of paper-grade pulp, 2.75 million metric tons of paper/board in the six months period. The company announced a +1.88% growth in revenue to RMB13.6 billion with net earnings of RMB516 million in its half year report. However, company net earnings would have fallen below RMB300 million, had there no government subsidies, market analysts said.

While industry production and sales activities are improving from June, the question still remains: can industry recover its lost grounds in the second half of the year? Market analysts believe there are some positive indicators, including steady rise in retail sales, especially through e-commerce which surged +14.3% in the first half of 2020 as compared with that of 2019. As a result, express mail deliveries exceeded 40.82 billion in the first 7 months of 2020, +23.66% from the same period of 2019, according to data released by China’s State Post Bureau (SPB). This has significantly boosted demand for packaging paper and board. On the other hand, however, stronger rise in price of recovered paper over that of finished paper and board since the 2nd Quarter has significantly thinned the gross margin of paper and board producers, which left them little room to maneuver. And the bittering Sino-US relations is making it more uncertain to the prospects in the rest of 2020 of China’s exports, which consumes huge amounts of packaging paper and board. More people agree that while large industry players may have a chance to plow back some of the losses, mid-to-small players can only go with the flow and at one step at a time…

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