Global OCC Markets Great Uncertainty About China November 2018 Hannah Zhao Senior Economist, Recovered Paper
OCC Prices in Different Regions 350 US OCC - $/Tonne (L) 3,500 300 250 German OCC - /Tonne (L) Other Asia Import US OCC - $/Tonne (L) China OCC - RMB/Tonne (R) 3,000 2,500 Before July 2017 One set of OCC prices 200 150 100 2,000 1,500 1,000 July 2017 onward Two sets of prices: China OCC price and OCC prices outside of China 50 500 0 16 17 18 0 2
Why Is China Important? China accounts for about 28% of world total paper and board production and consumption China consumes about one third of the world s total recovered paper (RCP) About 45 50% of global RCP exports go to China 3
Background of China s RCP Import Policy National Sword 2017 & Blue Sky 2018 Mixed paper ban Announced in July 2017, took effect at the end of 2017 New 0.5% contaminant standard Took effect at the beginning of 2018 Trade dispute between China and the USA Inspection and pre-inspection, CCIC, duty on US RCP (25%) and US recycled pulp (10%) Future Will China ban imports of all RCP grades? When? 4
Sharp Drop in Chinese RCP Imports Million Tonnes 3.50 3.00 2.50 2.00 1.50 1.00 0.50 Nearly 50% yearover year drop in Jan Sept 0.00 2016 Jan 2016 Jul 2017 Jan 2017 Jul 2018 Jan 2018 Jul Mixed paper ban OCC imports plunged by about 40% year over year China released 17.5 million tonnes of RCP import permits so far, but most of them were granted to large containerboard and boxboard producers (the largest three received about 65% of the total permits) 5
China s Dependency on RCP Imports Falling import share in Chinese total RCP demand Million Tonnes 100 90 80 70 60 50 40 30 20 10 0 Domestic Collection Net Imports Import Share Recovery Rate 12 14 16 18 0.60 0.50 0.40 0.30 0.20 0.10 Net import share 2012: 40% 2014: 35% 2016: 35% 2017: 31% 2018: 20%?!!! Can China raise domestic collection so much in such a short time? 6
High OCC Costs Faced by Chinese Paper Companies 350 300 250 200 3,500 3,000 2,500 2,000 Fiber shortage caused by sharp fall in imports Domestically collected OCC became very expensive as demand/supply balance tightened significantly 150 1,500 Fiber quality issue with domestic OCC 100 50 0 China Import US #11 $/Tonne (L) China Import US #12 $/Tonne (L) China Import JP OCC $/Tonne (L) Domestic OCC RMB/Tonne (R) 16 17 18 1,000 500 0 Without RCP import permits, most small and medium paper companies had to rely 100% on expensive domestic OCC 7
China s Increasing Virgin Pulp Imports Million Tonnes Grade 2016 2017 2018* Total 18.79 21.05 22.51 % Change 7.1 12.0 6.94 BSK 8.05 8.13 8.57 BHK 8.34 10.47 11.53 Unbleached Kraft 0.65 0.65 0.75 Other 1.76 1.81 1.66 * Estimated. Will there be enough pulp, especially UKP, in the market? 8
Chinese Recycled Pulp Imports Thousand Tonnes 2016 2017 2018* Total 12.6 11.9 230 % Change 55.4% 5.4% 1817%!!! Taiwan 0.23 0.42 143.0 Germany 5.72 6.83 22.3 USA 2.78 1.84 9.1 South Korea 0.04 0.10 3.6 Other 3.81 2.72 52.0 * Estimated. Where will the new recycled pulp capacity come from? 9
China s Falling Containerboard and Boxboard Production Million Tonnes 80 70 60 50 40 30 20 10 0 * Estimated. Containerboard Boxboard 2014 2015 2016 2017 2018* Fiber shortage? Or weak demand? Or Environmental issues? Demand shift from paper to plastic packaging? 10
China s Increasing Containerboard and Boxboard Imports Thousand Tonnes 3,000 2,500 2,000 1,500 1,000 500 0 500 1,000 1,500 2,000 * Estimated. Containerboard Boxboard 2014 2015 2016 2017 2018* Where did China import from? Other Asia? Europe? North America? 11
China s Impacts on Other Regions Other Asia RCP imports surged Increasing RCP availability and low fiber cost Growing recycled pulp production and exports Growing paper and board production and exports Risk: will this region start to restrict RCP imports too? Major RCP Exporting Regions Fall in RCP exports and increasing RCP availability for domestic paper mills at relatively low cost Growing recycled pulp and paper and board production and exports Possible decline in recovery rates in the near term 12
US RCP Exports Thousand Tonnes 1,600 1,400 To China To Other Asia Little drop in total RCP exports 1,200 1,000 800 600 400 200 0 2017 Jan 2017 Jul 2018 Jan 2018 Jul Exports to Other Asia surged by 122% year over year in January to August, while exports to China declined by 40% Exports of OCC increased by 21%? 13
Western European RCP Exports Thousand Tonnes 1,200 1,000 800 600 400 200 To China To Other Asia Net exports declined by about 14% year over year in January to July Exports to Other Asia surged by 100% year over year, while exports to China plunged by 60% 0 2017 Jan 2017 Jul 2018 Jan 2018 Jul Domestic demand was fairly strong 14
Japanese RCP Exports Thousand Tonnes 450 400 350 300 250 200 150 100 50 0 2017 Jan To China To Other Asia 2017 Jul 2018 Jan 2018 Jul China s RCP import policy did not impact Japanese exports to China much Net exports dropped by 6% year over year in January to August Exports to China dropped by 12% year over year, while those to Other Asia increased by 10% Good domestic demand 15
Future: China s RCP Import Policy Easing in RCP import restrictions? Import ban for all RCP grades? 2019? 2020? Our assumption on China s RCP imports 2018: 15 million tonnes 2019: 10 million tonnes 2020: 5 million tonnes 2021: 0 Uncertainty Will OCC, especially pre consumer OCC, be considered clean enough to be imported? Will China start to impose restrictions on recycled pulp imports? 16
Future: China s Domestic RCP Collection How can China improve its domestic collection? Government Two-network-integration (solid waste collection and resource recycling networks), support from local governments Private sector Paper mills, recycling companies, e-commerce players Many large paper companies recently raised the quality standards for domestic RCP, including OCC Limited room Real paper recovery rate is not low Potential supply increase Impact of trade dispute 17
Future: Chinese Paper Companies Global fiber sourcing and PAB production strategy Acquisition and new projects outside of China Virgin pulp, recycled pulp and paper and board lines But announced projects are not enough to make up the expected sharp drop in RCP imports Delay in new PAB capacity inside China Fiber issue? Slowing economic growth and slowing PAB demand? Demand shift to plastic? Closures of small or even medium size mills? Fiber shortage, high fiber costs, high environmental standards and cost 18
Future: Paper Industries in Other Regions Opportunity Risk associated with Asian RCP policy and trade dispute Global fiber balance in the long run China needs either fiber or paper and board Global OCC demand/supply will return to balance in the medium and long term 19
Thank you! For more information: Outlook for Global Recovered Paper Markets 2017 www.risi.com/globalrcp OCC/UKP Market Analysis and Outlook www.risiinfo.com/occ UKP The China Recovered Paper Market: A Comprehensive Analysis and Outlook www.risi.com/chinarcp World Pulp and Recovered Paper 5 Year & 15 Year Forecasts www.risi.com/forecasts World Recovered Paper Monitor www.risi.com/ogrpm 20