The Paper Industry Unwrapped

What do orange juice and paper have in common? Pulp. 

Wanna hear a joke about paper? It is tear-able! 

Okay, so we’re trying to have a little fun with a serious topic. Paper prices in China are going up. Why? Well, read below. But first, what’s a paper maker’s favorite movie? Pulp Fiction.

According to RISI, “Though China’s paper industry is in transition, it remains the fastest growing and most influential market in the global pulp and paper industry.”

 

The BackStory

Pulp and Paper News began talking about paper pricing in Feb 2016 and said global wood pulp prices were the highest in 30 years. And they were accurate in their predictions that the cost would continue to rise. They also were correct in the prediction that e-commerce growth will increase demand for paper-based packaging products. 

Also in Feb. 2016, World Trademark Review reported that a six-month shortage of special paper had left the Chinese Trademark office unable to print registration certificates. 

By December 2016, the ripple affect had PrintWeek talking about the letters going out to UK print merchants from manufacturers that warned of an additional increase of 5-10% on all orders placed after Jan. 2017. 

 

Now

As China focuses on cutting back on industry overcapacity there has been a spike in the price of paper and paper products. According to The Standard, “Hundreds of small paper manufacturers have closed down since 2014, including more than 70 firms in Guangdong and over 100 more in the provinces of Shandong, Zhejiang and Jiangsu.”

Ken Ho Wai-kuen, Chariman of Artical Printing Group explains the change, "The state environmental protection policy has led to the reduction in supply,” and "Some paper [products] imported from the mainland have doubled in price, while prices of others have spiked by 60 to 70 percent,"

 

Breaking Down the Numbers

According to Chinapaper.net

Most major paper manufacturers raised the price of corrugated paper in December 2016 by 200 to 500 yuan per ton (US $28 to $72) on an ex-factory basis. The facility in Dongguan of Nine Dragons Paper (Holdings) (2689) made the steepest price hike of up to 1,000 yuan per ton. (US $144)

The short supply has prompted manufacturers to start looking for carton paper suppliers in other provinces. But new transport regulations which came into effect last October have resulted in carton paper cost to increase by 200 to 300 yuan per ton. (US $28 to $43)

 

Expert Opinion

According to a representative from a leading US paper manufacturer, several issues are entwined that will create higher paper packaging costs in the months ahead.

New regulations in China require limited production hours, which has caused a shortage there.  As a result, corrugated box pricing in China increased by over 25% early this year and prices are still far above   where they were this time last year. 

Recycled papers are affected more than higher end paper because of the cost to produce and the lower price associated with making these.  Many companies are opting to produce higher end papers, since they get more dollars out of their production hours.  And they are shutting down inefficient lines, that typically run the lower end papers.

Most kraft papers are made in the USA by linerboard manufacturers.  Linerboard production is nearly at full capacity in the USA due to several factors, some short term, and some long term. For one, in January, International paper had a digester explosion in at one of its Florida paper mills that produced recycled linerboard.  This line produced 1,480 TONS per day.  They have reportedly made repairs and are ramping up production. But the accident resulted in a supply reduction of about 150,000 tons from the market. Also, Nippon Paper closed its Port of LA facility which produced over 100,000 tons of Recycled paper liner board paper per year. Many mills are simultaneously getting away from recycled papers due to inefficiencies of older lines and producing higher end virgin papers. 

However, China at the same time is taking as much recycled paper they can get because of their environmental limits the government imposed in November.  We are told they are paying top dollar for US materials, which is raising the price even more here domestically.

 

IMG_0354.JPG

Impact on Impak

Global paper increases will impact packaging costs. The expected bottom line globally to the packaging consumer is about a 5 to 12% increase in paper packaging items. The biggest increases will be in Recycled & Virgin Kraft linerboard which effects shopping bags, chipboard and corrugated boxes. 

To counter these price challenges, Impak's packaging innovations team is exploring alternative materials and logistics options to offset or soften the impact to our customers. Many of our customers are seeking more sustainable programs investing in reusable packaging alternatives. Speak with our team on how you can reshape your packaging program and unwrap new possibilities. Reach out to our team at 855.544.6725 or contact@impakretail.com

To answer the age-old question: If a tree falls in the woods and no one is around, does it make a sound? Yes, apparently it’s heard around the globe.

Caleb Lummer