Paper shortage hits manufacturers

Finance | Carrie Chen and Esther Yu 9 Jan 2017

Scores of mainland manufacturers are beset by shortage of carton paper for packaging amid closures of small paper manufacturers as Beijing steps up moves to protect the environment from pollution and trim industry overcapacity.

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.

As air pollution further deteriorates in the mainland, more paper manufacturers are expected to close down in the near future, analysts said. The government's continued focus on supply- side reform is also tipped to result in a further reduction of production capacity.

Between 2011 and 2014, excess capacity that has been eliminated reached 32.7 million tons, 8 percent higher than the target set by central government.

More production capacity was eliminated in 2015 and 2016 as municipal governments imposed stricter measures.

With reduced supply of carton paper, the price of raw paper in China continued to rise.

Since November, 16 paper manufacturers raised their prices by 100 yuan (HK$112) to 600 yuan per ton.

Between August and November last year, the average price of corrugated paper increased most from 2,700 yuan per ton to 4,200 yuan per ton, according to mainland paper information website

At the end of last month, the price hit as much as 4,338 yuan per ton.

Most major paper manufacturers raised the price of corrugated paper last month by 200 to 500 yuan per ton 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.

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.

Artical Printing Group chairman Ken Ho Wai-kuen said rising prices in the mainland have a huge impact on the local paper industry.

"Some paper [products] imported from the mainland have doubled in price, while prices of others have spiked by 60 to 70 percent," he said.

"The state environmental protection policy has led to the reduction in supply," he said, adding "cheaper paper [products] took the biggest hit but high-quality ones are fine."

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