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A New Hurdle To The Weak & Small
2021-10-09 12:30chinapaperonline.com
Having gone through the impacts of COVID-19, tight supply in fiber, especially recovered paper and other related difficulties, China's paper and board producers are now confronting another challenge. This time, it is the hit from nationwide shortage in electricity supply! Available information shows since September 2021, at least 20 provinces and cities in the country have introduced power outages or curtailment measures of varying intensity, including staggered peak power consumption, emergency power cuts, pressure limit loads, enterprise hierarchical shutdowns and production restrictions, irregular power cuts and power restrictions, etc., regardless of the 13.7% increase year-on-year to 4,285.1 billion/kwh of the country's overall electricity consumption along with economic recovery and growth in the first eight months of 2021.

As a huge consumer of electricity, paper and paperboard mills cannot afford the loss and have to suspend production under power limitation at the high season, while sending out price rise letters to customers at the same time. Industry professionals predict that a total of 700,000/mt of paper and paperboard output will be affected among the top-10 producers in the September-October period. Not only leading producers, such as Nine Dragons, Lee&man and Shanying Paper, are taking downtimes, many mid-to-small companies are not able to operate in wake of power curbs or outages. Sales price of products available to ship to the market surges consequently. Take corrugating medium, for example, price has jumped repeatedly and reached its shocking height at RMB4,000/mt!

Based on past experience, market observers see that production suspension along with price increases would keep price stable and stay high longer. More people believe, however, that extended production suspension and price increases will stimulate the process of industry consolidation as only the large players in the market, who have built strong positions in earnings, financing, production capacity, equipment and technology, are able to leverage multiple markets and resources to secure cash flows, fiber supply and product sales, and weather the storms including energy, transportation and the epidemic changes.

Annual reports from China Paper Association (CPA) showed that China produced 107.65 million/mt of paper and paperboard in 2019. In which, 33.15% were contributed by the top-10 companies. And in 2020, such a ratio grew to 34.31% in the total production of 112.60 million/mt. No doubt, the ratio of the top-10 companies will be further increased in view of their high operation and amazing earnings in the first 7 months of 2021 and their capability to weather the storm of power shortages.

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