26 November 2018 Paper

The great wall of China

China’s decision to ban imports of waste from the west is having consequences for the price that a printers have to pay for their paper in Europe.

Nobody has escaped paper price increases this year. It seems to have been a trend to hike the cost every few months regardless as if the paper industry is on some kind of retribution for the years when printers have used market conditions to keep paper prices lower than mills and merchants would like. Simply there has been overcapacity in certain grades, an overcapacity that seems to be coming to an end.

There is no question that paper consumption is falling, at least that is paper consumption for printing papers. At the same time demand for packaging materials is soaring, particularly for corrugated boxes spurred by the explosion in online shopping.

This has also encouraged investment in digital machines to print on corrugated. While paper companies have scrambled to convert mills producing graphical papers to making either carton boards or corrugateds.

This is at it starkest with StoraEnso. In the summer it announced plans to convert coated paper production at its Oulu mill in Finland to produce carton boards. Around 1 million tonnes of coated paper would be removed from the European market at a stroke. This is in itself around 13% of total European production and close to what is estimated to be the amount of excess capacity in this part of the world. Only 15 years ago mills producing 250,000tpa were only marginally profitable and were closed, a trend which all but wiped out the UK production of this style of paper. Now mills need to produce 1 million tea and then are not assured of continuing support.

That review is ongoing, but there seems little doubt that it will uphold the original decision. The only chink of light is that revenues and margins from paper increased in Q3, but its packaging division reported a record busting quarter and the giant forest products company has already committed to a €9 million development of a corrugated plant in Latvia.

StoraEnso's plans are just part of a wave of conversions and investments. Paper industry consultants at Euwid reckon that for 2019 and 2020 there are already projects underway that will add 4 million tonnes a year of new capacity for corrugated.

This is without the conversion projects that are also in place. So far the amount of new capacity coming on stream has been balanced by growing demand, now it seems that capacity is out running demand and the familiar paper industry pendulum where everyone jumps into a segment resulting in a massive increase is production and supply without the demand for the material, is back in play.

Whether this will save Oulu is moot. Nor will sentiment that suggests a move back to print and paper from online marketing. Printers must brace themselves for more price increases and perhaps even supply shortages in some grades in the next couple of years.

But this has not been the cause of price increases this year. For that we have to look east. At China. The Chinese government has put in place a policy of not accepting waste from western countries in July last year. It took effect at the start of this year. The country wants to eliminate all imports of recycled material by 2020.

This is causing problems in the plastics industry, and it is causing a massive problem in paper. Vast quantities of paper have been sent to China for recycling, turning into pulp and then carton materials and corrugated. Without this supply of fibre, China has had to turn to world markets for its pulp. There is not enough forest cover in the country to meet demand for pulp and such as there is is already accounted for.

At the recent EMGE conference this was spelled out by a number of speakers. EMGE started as a consultancy for office papers and now also runs one of the most successful independent conferences for paper in Europe.

Two-thirds of China’s paper making industry is dependent on recycled fibre, amounting to 60 million tonnes, 50 million tonnes of which has been imported, 12% of that from the UK alone. This is putting pressure on the UK recycled paper sector as it has to find alternative outlets for its raw material closer to home.

For the Chinese industry there will be an increase in fibre collection domestically (one of the strategies behind the policy) an increase in demand for pulp from recycled fibres, an increase in imports of paper and board and a large increase in demand for virgin fibre pulp. It is the latter two that are driving up paper prices in the UK.

One way around this is for Chinese companies to invest in recycled fibre capacity outside China and use these to produce the pulp it needs and a number of such projects are underway. Another factor comes into play for the US at least. The Trump administration is levying extra duties on papers from China, something that is blamed for the collapse of a web offset print in Hawaii. recently. And should the trade war continue and hit imports into the US, there will be an impact on demand for corrugated.

Berry Wiersum, CEO of Sappi Europe, provided the view from a European paper making, looking further into the future than merely the next 12 months. His presentation took in the effects of climate change: more than 20 million cubic metres of spruce trees in Germany died as a result of this year’s long hot summer, and if these conditions are to become the norm, the impact on available fibre will increase.

At the same time industries are looking to greater use of trees as a renewable resource rather than fossil fuels. The current policies and practices will not be enough to stave off climate change he warned, bringing it home by comparing the average temperatures in the 1950s when his mother was a child and the conditions when his daughter retires in 2060. Under the current scenario he said the average temperature will be 7ºC higher. This will cause major changes to climate and living conditions.

But the key influence on current price levels has been what is happening in China. The price of softwood pulp has risen from less than $1,000 a tonne to more than $1,250, with Sappi and other papermakers expecting it to oscillate around the $1,200 level for the next few years. The current round of paper price rises it seems will stick.

As sustainable alternatives for fossil based plastics are developed demand for cellulose derived from wood pulp will increases changing perception of the pulp and paper industry from one that is responsible for the destruction of forests and other environmental damage to the saviour of the world’s consumption led economies.

Consequently packaging in paper and board is becoming more popular and will continue to expand, hence the conversion of capacity that was dedicated to commercial print magazines and catalogues to carton boards and corrugated.

Globally this also driven by the maturing economies in Asia and South America where urbanisation creates demand for more packaging, both to preserve food and for retail convenience.

Given these conditions it is perhaps surprising that the paper price has not increased more than it has, a function of the over capacity that exists as the traditional printing and publishing industry declines. And the rise in the price of paper may hasten that decline. At least one offset printer has been told that by one publisher customer that the increase is going to lead to the closure of some magazine titles in the new year.

There is hope as Wiersum told the EMGE delegates, just as those attending the Print Power conference heard. Print is undervalued in terms of influence and as fake news, spam and concerns abut privacy increase, print is regarded as a more important and influential channel.

It always has been for luxury brands that have understood that they need to stand out through their choice of paper and quality of printing. Others will discover this. Peak digital is coming, perhaps by 2023 when consumers can give no more time to connected devices and as people turn away from screen time in favour of a digital detox each week.

But the price of paper will not fall to accommodate this. Instead printers will need to learn to manage paper better, opting for slightly lower weights and higher bulk papers, specifying sizes from merchants that do not leave trim on the cutting room floor.

EBB has plans to stock Sappi’s GalerieArt in a greater choice of weights and formats from the new year when Sappi becomes its sole supplier of coated papers. Denmaur will provide advice to printer on how to manage paper better. Ultimately however prices will have to be passed on to customers. We can thank the Chinese for that.

Gareth Ward

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The Chinese government has decreed that the country should no longer be acting as the recycling centre for western economies, with a knock on effect for paper prices. Starting at the beginning of this year, the country wants to eliminate all imports of recycled material by 2020.

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