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Why Paper Production Growth Slowdown
2021-12-06 13:00chinapaperonline.com
Latest data released by China National Statistics Bureau (CNSB) showed production of the country's machine-made paper and paperboard in the first ten months of 2021 totaled 111.64 million metric tons. Though growing 8.4% from the corresponding period of 2020, the pace of increase slowed down to single digits. And production in October in particular slid to 11.01 million metric tons, which was down 6.7% year-on-year, regardless of the moderate rise from September. However, production slow-down seemed to have no negative impacts on financial performance of the industry. From January to October, earnings of production and conversion of the industry reached RMB70.72 billion, +22.4% from that of 2020.

While some market analysts believing that the slow-down in production was primarily the outcome of government policy to control both energy consumption and intensity in the country's manufacturing industries in recent months, others suggest that although "dual control" has impacted operation of industries, other factors that have been working even without the "dual control" cannot be ignored. Such factors include: 1) Supply and demand. Since the 2nd half of 2020, production of China's paper industry has been on the rise month after month and reached historical heights by the 2-3 quarters of 2021. However, demand has not been able to grow in the same magnitude. With or without the "dual control", many large paper companies, especially those in the packaging paperboard producers, have realized the need to better manage output to avoid excessive inventory. Given the total output of the industry in September and October is down by about 1.7 million metric tons year-on-year, or -7.8%, it remains debatable to determine whether it is the result of the "dual control" or a correction of the excessive production so far. 2) Structural changes in the industry. Subject to declines in demand, industry production of some grades of paper has been declining. This is especially visible for newsprint, whose output shrank to 763,000 metric tons in the ten-month period, or -7.6% year-on-year. In October alone, production tumbled to 66,000 metric tons, -14.3% from 12 months ago. 3) Correspondence between production cost and product sales price. The supply of fiber materials, represented by recovered paper, has been tight, with more price increases than decreases. Paper companies need to keep a fair balance between production cost and product sales price. Appropriate slowdown in production can be conducive to the sales of finished paper and paperboard. For large companies, managed production cuts to stable sales price or even raise price to move paper or paperboard in a certain period of time may not only be beneficial to short-term earnings, but also paving the way for future operations. The effectiveness of such strategy is also supported by some industry information which tells that average prices of linerboard and medium in the first ten months of 2021 peak from a three-year period.

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