Although China’s slower gross domestic product growth has garnered many headlines in the financial press, the nation’s newly established and sizable middle class still exerts enough purchasing power to keep China’s packaging board mills busy.
Excess production and an overcapacity situation are leading to slim profit margins and some shutdowns in the sector, but speakers at the 2015 RISI China International Recycled Fiber Conference, which took place in early December in Shenzhen, China, painted a long-term picture of China’s packaging grade mills continuing to rely on recovered fibre from other parts of the world.
Regarding the current overcapacity situation, Chinese companies—sometimes in cooperation with the Chinese government—are beginning to take steps to limit mill capacity.
Chinese mills that survive the shakeout were predicted to find insufficient nearby supplies of old corrugated containers (OCC) and other grades, meaning paper recyclers in North America and Europe should remain an important source of supply for the foreseeable future.
The ongoing demand from mills in Europe, North America and China appears poised to keep OCC in tight supply, predicted Bill Moore of United States-based Moore & Associates.
Moore described conditions in the North American scrap paper market that may put a ceiling on exports from that part of the world. Recycling rates that are already high, Moore said, mean “as recovery rates go higher, each new ton of material recovered costs more to get out of the waste stream.”
Marc-Antoine Belthé of Paris-based Veolia Environnement SA said the EU OCC collection rate is estimated to be as high as 127 percent (with imported boxes providing the surplus)—a figure that will be very difficult to improve upon in the future. Another factor that may limit the EU’s ability to increase its supply of recovered fibre to China is the growth of Europe’s waste-to-energy (WtE) sector. “WtE will keep expanding in Europe,” said Belthé, who described it as “starting in the north and is now going to central and southern Europe. It represents real competition.”
Policymakers in China are taking measures to collect more recovered fibre domestically and to keep the import shipments flowing. Guo Yongxin of the China Paper Industry Chamber of Commerce said China’s government has already provided some relief on the import front in the form of a 50 percent value added tax (VAT) rebate for buyers of imported recovered fibre. “We’ve achieved a success, but that is not enough,” Guo said, adding his organisation would prefer a 100 percent VAT (value added tax) rebate.
A buyer for one of China’s largest packaging grade producers said the VAT rebate will help his company as it seeks to squeeze out a profit margin in a competitive market.
That same VAT rebate has yet to be extended to transactions pertaining to domestically recovered scrap paper, which would seem to be at odds with a Chinese central government “circular economy” policy to boost recycling.
Tang Yanju of the Beijing-based China Resource Recycling Association (CRRA) said the exclusion of domestic recovered fibre for the VAT rebate “is bad news for domestic recovery.”
Nonetheless, Tang said collection of recovered fibre has been strong in China’s largest cities and is beginning to strengthen in other parts of the country. “Given the westward transfer of the papermaking industry and the government’s requirement on relocation of [mills], forward-looking packaging companies have built recovered paper collection networks in Hebei, Hubei, Hunan and Jiangxi provinces,” she remarked.