Recently, a number of listed paper companies released their interim reports or preliminary results for the first half of the year, revealing an increasingly pronounced divergence in performance.
Jingxing Paper, Wuzhou Special Paper, and Rongsheng Environmental Protection reported substantial year-on-year increases in attributable net profit, while Shanying International and Yueyang Forest & Paper reported attributable net losses.
Uneven Performance Emerges Across the Paper Industry
“Uneven performance” has become a defining feature of China’s paper industry in the first half of the year. Overall, profitability has shown signs of recovery. According to data from the National Bureau of Statistics, the paper and paper products industry generated revenue of RMB 689.79 billion in the first half of the year, up 5.5% year on year, while total profit reached RMB 19.61 billion, an increase of 27.5%.
“Some paper segments have performed relatively well, but overall market demand still needs to be closely watched,” an executive at a paper company told. Several industry insiders believe that demand has yet to recover across the board, and that as integrated forestry-pulp-paper operations continue to expand, cost-control capabilities are becoming a key competitive factor.
Some Paper Companies Stabilize Ahead of Peers
Across individual paper segments, “divergence” was the key theme in the first half. The packaging paper market experienced a moderate recovery, with profitability improving; tissue paper saw higher volumes but weaker prices; while cultural and printing paper continued to face pressure from supply and demand, with paper prices still declining.
The divergence is also reflected in corporate results. Lee & Man Paper, a Hong Kong-listed company, reported first-half revenue of HKD 14.8 billion, up 21.3% year on year, and net profit of HKD 1.373 billion, up 69.3%. Profit growth significantly outpaced revenue growth.
Wuzhou Special Paper, a leading A-share specialty paper producer, also delivered strong results. The company reported first-half revenue of RMB 4.895 billion, up 18.76% year on year, and attributable net profit of RMB 230 million, up 88.95%. During the reporting period, multiple new production lines at its Hubei base began ramping up, providing important support for earnings growth.
Hengda New Material reported first-half revenue of RMB 548 million, up 5.16% year on year, and attributable net profit of RMB 53.848 million, up 57.29%. In addition, Guanhao High-Tech, Jingxing Paper, and Rongsheng Environmental Protection also recorded significant improvements in first-half performance.
Although the industry as a whole has shown signs of recovery, companies that rely heavily on cultural paper and packaging paper remain near the bottom of the cycle. Shanying International reported an attributable net loss of RMB 682 million in the first half, swinging from profit to loss year on year, mainly due to a decline in the gross margin of packaging paper. Yueyang Forest & Paper reported a net loss of RMB 9.75 million, mainly attributable to lower average selling prices of its products.
According to a representative of Wuzhou Special Paper, the profit growth reported by some paper companies was driven partly by a low-base effect and partly by increasing industry differentiation. Companies with stronger supply-chain integration capabilities and more diversified product portfolios have performed relatively well, while companies with a single-product focus continue to face pressure.
An industry source noted that wood pulp accounts for approximately 60%–70% of papermaking costs. In the first half, lower imported wood pulp prices, combined with the appreciation of the China yuan, reduced procurement costs for some companies.
Acceleration of Integrated Forestry-Pulp-Paper Operations
With limited demand growth, cost control has become a key factor in determining the profitability of paper companies. A papermaking analyst said that companies seeing profit recovery are predominantly large-scale paper producers. Their improved profitability has mainly resulted from lower raw-material costs as self-produced pulp capacity under their integrated forestry-pulp-paper strategies has gradually come on stream, thereby expanding profit margins.
A representative of Xianhe Paper said that China was previously highly dependent on imported wood pulp. In recent years, as leading paper companies have invested in their own pulp sources, the share of domestically produced pulp has increased, reducing the influence of overseas suppliers on pulp prices in the Chinese market.
“China is already the world’s largest papermaking nation. Going forward, the core competitiveness of companies will ultimately lie in the ability to integrate resources across the entire value chain, particularly in securing forest and timber resources,” a representative of Wuzhou Special Paper said.
At the same time as moving upstream, some paper companies are also expanding into higher-value-added products and downstream businesses.
Xianhe Paper, for example, is continuing to advance its integrated “forestry-pulp-paper-use” strategy while expanding into areas such as electronic materials and insulation materials. The company is also moving downstream into the consumer market through its end-user brands and has established an overseas production base in Cambodia.
“Papermaking is only an intermediate link in the industrial chain. We aim to connect the upstream and downstream segments by investing in pulp and downstream end products, increasing product value and improving gross margins,” a representative of Xianhe Paper said. The company will emphasize innovation and leverage its proprietary raw materials to develop more innovative products.
