Recent reports from China's National Bureau of Statistics (NBS) showed the country machine-made 79.22 million metric tons of paper and paperboard in the first seven months of 2022, down 0.9% from the corresponding period of 2021. This came with further downturns in the newsprint sector as only 545,700 metric tons were produced, 3.79% less than that of 2021. Though business revenue of sizable manufacturers* of paper, paperboard and converted products in the whole industry growing 2.4% to RMB851.79 billion, their total earnings nosedived by 45.6% to RMB28.72 billion only during the period!

The soar in prices of commodity and logistics in the global arena apparently led to surges of operation costs of China's paper companies in the first half of 2022. Many producers, especially those consuming large volumes of wood pulp to run SBS board and fully coated paper, saw spiral rise in their fiber costs. At the same time, product sales of paper producers encountered weak demand in the China market where the role of price transmission mechanism was difficult to play, products sales price was lower and profit margin was greatly squeezed from the same period of the previous year. Take Chenming Paper as an example. The company's operating cost in the first six months of 2022 rose 18.5% to RMB14.05 billion from the same period of 2021. According to its half-year report, this was the result of significant price increases in raw materials, such as wood chips, coal and chemicals, which led to a 55.33% jump in the operating cost and more than 27% shrink in gross margin of the company's core product - SBS board.

To reverse the unfavorable situation, many Chinese paper companies turned to vigorously developing export channels, while trying to cut costs and expenses. Data from China Customs showed China imported 4.74 million metric tons of paper and paperboard from January to July in 2022, down 29.59% from the same period of 2021. On the other hand, exports surged 85.13% to 3.85 million metric tons!

Industry professionals now see that increased operating costs and reduced profits in the industry in 2022 may be a foregone conclusion. But it is still a pragmatic move if large companies in the industry can stabilize their positions and strive to expand domestic and overseas sales to lay a solid foundation for improving profits after the situation improves in the coming year.

*Individual annual business revenue should reach or exceed RMB20 million.