Weighing up various factors leading up to the current soaring paper prices.
Defying all demand-price relationship rules, paper prices today know just one direction and that is upwards. It indeed is a very valid reason when printing and packaging companies wonder why the industry has been facing the brunt of continuously rising prices of paper and related products although its key deciding factor viz. demand has been dismally low during all these times. The prices are zooming uncontrollably over the last few months and leading experts in the industry have expressed their apprehension that this scenario will still take a couple of quarters to settle. We tried to find a reason for these presumptions by talking to the leadings lights in the industry.
China’s waste paper ban
Chinese government banned imports of all sorts of waste paper from anywhere in the world starting the 1st of January 2021. As we know almost 55% of the available waste paper from across the world was being consumed by Chinese mills to convert it into useable paper. With this ban in effect, and with no letting up in consumption of paper in China, it is obvious that the industry needs raw material to process it. And, with the mills in South East Asian countries including those from India starting processing the waste paper into pulp and supplying it to the Chinese mills in hordes – at prices which were much more remunerative than what they actually could get from the captive local market – the consequent material shortage led to prices shooting unabated.
To talk of the international aspects of price increase in our region, it is known that in Europe, with three new 100% recycled paper mills having started production in 2020, an additional 3 million tons of waste paper will be consumed internally leaving a large vacuum in the export market to south East Asian countries including India. With environmental aspects being in the forefront of the European Union, recycled paper today use less wood, consume less energy, less water and emit less carbon dioxide, which position recycled paper mills preordained to grow more.
In America, Chinese companies have invested heavily into very large paper mill capacity to export to China and have even taught the Americans that blending recycled paper with prime wood pulp to make KLB make better commercial sense without too much of a change in the quality. Well, the Chinese paper industry has also invested in neighbouring countries like Taiwan and Vietnam by even erecting paper mills on war footing to beat the 1st January 2021 deadline and successfully too.
Biggies like Nine Dragon and Lee & Man are planning for massive mills on the China-Vietnam border. India happened to import a considerable amount of waste paper from Australia but there has been a decline in availability from this region too. Nine Dragons has already commenced the construction of a facility with the capacity of 7.95 million tonnes per year along China’s border with Vietnam. It is expected to require $4.6 billion (£3.3 billion) investment by the company.
Coming back to the wastepaper consumption, due to the Chinese mills’ getting pulp from the USA, the wastepaper consumption has increased there. Also, the quantity available for export has drastically come down, which has spread out the demand supply gap thereby increasing the price of waste paper. Mr.Amit Goel, MD of one of the leading importer of waste paper into India, Knam Marketing Pvt. Ltd., while speaking to PRESSIdeas on the price fluctuation of waste paper exclaimed, “AOCC which is not available readily and hovers around at 325 USD presently has come down from an unbelievable 125 USD about one year back; it is a perfect representation of the story today.”
Shortage of containers
The Covid-19 outbreak resulted in acute shortage of containers which played a very big role in the spike in wastepaper prices. The shortage easily toppled wastepaper off-balance as even a slight change in freight cost had a direct and massive impact on the overall prices of wastepaper which has been a low value product.
With freight cost increasing between 3 to 6 times, the effect on the price of wastepaper has been more than drastic, to say the least. It is also speculated that most shipping lines have experienced higher profits due to this and are now reluctant to introduce more ships and containers as that may result in balancing the demand-supply situation and lower prices. “It is bound to remain such for at least the near future,” divulges a senior executive from the Indian shipping industry while speaking to us on condition of anonymity.
Covid-19 and its effect
The havoc COVID-19 created the world over has left none untouched. The damage is inaccessible and the pandemic has undoubtedly devastated the world economy to the tune of billions of dollars. The loss however is bigger in the western countries of Europe and America when we compare it with that of the Asian countries. The two most important Asian economies, China and India have seen V shaped recoveries, and this has created a huge surge in demand resulting in the spurt in prices across commodities. Due to the sporadic shutdowns in the western world, from where most of the waste paper comes into India too, the collection of waste has been severely affected. Consequently, exports to Asian countries dried up; waste from Europe to India has almost come to zero levels; and waste from USA, the best source of good quality fiber, almost dwindled to alarmingly low levels – all because of lower levels of collection, non-availability of containers, and increase in self consumption.
Coming back to China, the country used to produce close to 28 million tons of Kraft paper a year and did not export anything as its self-consumption was very high. They imported the highest quality of waste in the world to manufacture Kraft paper. Once the ban came into effect, the available local waste was not enough to meet the requirements of paper resulting in an estimated short fall of about 15 million tons of paper per annum. This gap is now being filled by KLB imports from all across the world and import of pulp reels from countries like India. They import very low quality paper from India with reasonable fiber quality which is directly pulped to make better quality paper to meet their demand. China was paying Indian mills USD 270 pmt for this paper last June and today they are paying USD 510 for the same. “From zero exports of paper to China, today India is exporting close to 15 lac tons per annum to China in the form of pulp reels; the export is expected to go up to 20 lac MT in 2021,” says Mr.Amit of Knam Marketing.
What is shocking is the fact that the present exports by Indian mills constitute a sizeable chunk – about 30% of our local requirement. With this kind of new demand, all mills in India are overbooked with orders and there is a big gap in the demand and supply – with demand out stripping supply. What is even more frightening is that with so much paper being exported, we are losing that much fiber from the system. With the fiber recovery cycle in Indian continuing to be very poor, we are left to overly rely on imported waste to fill the void that has been created. With the Indian economy expected to grow by 12-13% in coming years, this gap in demand and supply is going to persist for months to come.
It is truly a worrisome scenario for the paper consuming industry at least in the near future!