On August 27th, APP (China) officially completed its acquisition of 48.84% stakes of Shandong Bohui Paper Group. This is the first equity transaction in history between the top-2 producers of China’s coated SBS board industry and will likely lead to more M&A activities among mainstream players in the same sector or other sectors of the paper industry of China.

While hailing for the merger that may consolidate the country’s coated SBS board industry which has been plagued by excessive capacity and messy competition for years, market analysts are also concerned about possible autocrat impacts in future supply and pricing decisions by APP (China) as the company is now the de facto King of the industry with roughly half of the 10 million/mtpy industry capacity and nearly 60% of the China market in its hands!

China’s coated SBS board industry began its strong expansion from 2013. Industry capacity more than doubled from 4.89 million/mtpy in 2012 to 10.92 million/mtpy in 2019! However, demand did not grow as fast. By 2019, demand only reached 7.92 million/mt and whether or not it will exceed 8 million/mt in 2020 as previously projected is still questionable under the COVID-19 impacts. With more than 2 million/mtpy of excess capacity, the industry went through some tough periods in the past few years. During which, a number of players, including some mainstream producers, were not able to keep running and sank as a result. By end-2019, there remained 4 consistent producers in control of more than 80% of the China market:




Requirements from China’s antitrust law and security regulations for APP (China) to sell stocks beyond the 30% limit it owns at Shandong Bohui Paper Group through past and present transactions and the fact that much of coated SBS board output from APP (China) as well as some from Shandong Bohui Paper Groups are bound for export may assure both the authorities and the market of continuation of free market activities and ease concerns on a market tyrant down the road. Even so, the fact that APP (China) is the single largest shareholder of Shandong Bohui Paper Group with pivotal presence in the company Board and influence in day-to-day operation, and more critical is APP(China) now in control of half of the coated SBS board business in China linger in the minds of industry players and market analysts. They may watch more closely at future moves of APP (China), especially on possible outcomes when overseas business changes cause the company to divert much of its production to the Chinese domestic market.