Investigation and survey on nine paper companies in Jiangxi provice, China.

The survey shows that large paper companies occupy competitive advantages and continue to push up the operating costs and risks of small and medium-sized paper enterprises. Small and medium-sized paper enterprises need to change their business models and shift capacity to cheaper locationsto reduce costs and increase efficiency.

The increase in finished paper prices is hard to offset the surge in raw material costs, forcing some small and medium-sized paper enterprises to shut down.

The market competitiveness of small and medium-sized paper enterprises is weak, which means it is more difficulty for them to buy raw material in the market.

The investigation found that the price of waste paper in Ji'an City has risen in recent years, with a result that they are short of funds to acquire waste paper and finally they have to shut down. Most of the local waste paper was shipped to leading enterprises in Guangdong.

In the case of high raw material costs, low inventory and more orders, the leading paper companies in the industry have given higher prices for waste paper purchases than ordinary paper manufacturers. Leading paper companies have absolute influence on the purchase price of waste paper, which dominates the market price. Local enterprises have to purchase waste paper from other places which will bear an increase in logistics cost.

The surveyed enterprises believe that the price increase of waste paper is not only due to insufficient supply. The reason why the purchase price has soared is mainly due to the greater demand for waste paper from large number of production lines of leading enterprises who have the ability to purchase waste paper from various places at a high price. The price of waste paper across the country has continued to rise.

The increase in finished paper prices is hard to offset the skyrocketing cost of raw materials, and corporate profits are shrinking. Take an example of the black cardboard produced by a paper company in Jiangxi. In 2016, the ex-factory price was 3,651 yuan/ton, and in 2017 it was 4,300 yuan/ton, rose to 6,100 yuan/ton In 2018. According to the financial data of the company, the sales revenue in the first quarter of 2017 increased by 95.1%, but the profit only increased by 8.9%; the sales revenue in the first quarter of 2018 increased by 4.0%, and the profit increased by 2.8%.

The paper price is high and the business risk is increased. The manufacturers are rushing to hoard raw material, which has increased the financial rish of the capital . Once the price of paper stop soaring, profits will shrink and losses will be faced. The shortage of waste paper has also prompted manufacturers to increase the price of sales. As the paper price has been raised again, downstream companies have to consider seeking alternatives for other raw materials to keep running, instead of buying paper products.

Six reasons to push up the price of paper and Great changes in the paper industry

1. The environmental protection standards have become stricter, and a large number of small and medium-sized paper enterprises have been shut down and production capacity has been reduced. Since the fourth quarter of 2016, environmental protection has continued to be strict. In 2017, environmental protection supervision continued to be “high pressure”, and the “ten small” enterprises with serious pollution such as papermaking, packaging and printing were banned or shut down. The big paper mills were restricted in production. The backward and medium-sized papermaking enterprises that are not up to the standard of environmental protection have been shut down or rectified.

2. The import of waste garbage is strictly controlled, and the supply of waste paper is further contracted. The State has successively promulgated several regulations to prohibit the import of solid wastes. The smuggling of “imported garbage” was hit hard, the proportion of imported waste paper and some imported waste paper pulp declined, which partly causes the supply shortage in the domestic waste paper market.

3. Uncertainties such as exchange rate fluctuations and Sino-US trade frictions pushed up expectations of price increases. According to the data, in 2017, China imported 43.7 million tons of garbage, of which waste paper accounted for 58.8%. Due to the insufficient recycling of domestic waste paper, paper manufacturers are highly dependent on imported materials. According to industry association statistics, the external dependence of wood pulp raw materials is as high as 60%-70%.

Since mid-June, the exchange rate of the RMB against the US dollar has undergone a rapid adjustment. From late April to the end of June, RMB against the US dollar was lowered from 6.28 to 6.61, depreciating by about 5.3%, which had an impact on paper price expectations. In July, the exchange rate against US dollar increased again, and the paper price also stabilized. The fall in the exchange rate and the escalation of Sino-US trade friction have intensified the rise in the price of waste paper raw materials in the context of restricting the import of waste paper and the tight supply of domestic waste paper.

4. The upstream pulp supply shortage drives the downstream price increase. The data show that the proportion of waste paper pulp in China's paper pulp consumption is as high as 60%-70%. Since the beginning of this year, upstream raw materials are in shortage. At the end of April, several shipment of imported waste paper was returned, and the import waste paper policy continued to tighten, which intensified the shortage of waste paper in the domestic market. The domestic waste paper recycling system is not perfect, and the waste paper traders began to hoard the materials, resulting in the continuous growth of waste paper prices. In May, as the temperature rose, the demand for beverages and beer increased sharply, and the seasons of boxboard and corrugated paper came. At the same time, benefiting from the rapid development of e-commerce and logistics industry, the demand for raw paper and paper products is growing. The supply can't fulfil demand and the paper price continue to increased.

5. Transportation and labor costs increase with high enterprise operating costs. According to some data, the most stringent highway governance policy introduced in September 2016 has led to a 30% increase in paper transportation costs. In addition, in recent years, the minimum wage standards and social security fees that have been continuously raised in various places, as well as the increase in sewage charges, have led to the increase in the operating costs of the paper industry. Jiangxi is located inland, all the trasportation is finished by land. The logistics and transportation costs are relatively high. The waste paper is purchased from all over the country under the shortage of materials. At the same time, Jiangxi's economy is underdeveloped with limited consumption of high-end paper products, and paper products with higher profits are sold to other provinces.

6, The supply and demand situation has shifted, the seller's market has the final say. Most of the backward production capacity of the market was eliminated, and most of the production capacity began to concentrate on a few large enterprises. According to the data, the production capacity of the top 8 paper mills in China has exceeded 70% in the offset paper industry, and the competition situation has gradually changed from “buyer market” to “seller market”. After the concentration of production capacity, some major paper companies began to raise their prices.