SunSirs: China Corrugated Paper Experienced Strong Decline and Weak Rise in 2023, and the Supply and Demand Pattern may be Optimized in 2024

Supply and Demand Pattern may be Optimized in 2024

According to the monitoring of the commodity market analysis system of SunSirs, the overall price of corrugated paper in 2023 showed a strong decline and weak increase. As of December 31, 2023, the average ex factory price of 140g corrugated base paper was 2,832 RMB/ton, a decrease of 11.61% compared to the average price of 3,204 RMB/ton on January 1.

Looking back at the prices of corrugated paper in 2023, the overall industry prosperity has been sluggish due to multiple factors such as import tariff adjustments, sustained weak demand, and cost declines. The high point of the annual price appeared in early January at 3,204 RMB/ton, and the low point appeared in early August at 2,640 RMB/ton. The difference between high and low prices was 564 RMB/ton, a decrease of 17.6%.

The first round of market (January May): Corrugated paper experienced a strong decline and weak rise, with a price drop of 11.17%.

In the first quarter of 2023, the corrugated paper market was under pressure and declined, with price trends showing a trend of first stabilizing and then decreasing. The price fluctuations in the January market were relatively small due to the impact of the Spring Festival holiday, with a focus on stable observation. From February to March, the market entered a downward trend, and the price decline of corrugated paper continued to expand. The main influencing factor is poor demand. With the upstream paper mills recovering steadily, the contradiction of oversupply in the market has become prominent, and prices continue to decline. In addition, with the adjustment of import policies, imported paper has gradually arrived at the port, putting pressure on domestic market paper prices to decline. From April to May, the price of corrugated paper bottomed out and rebounded. The market was driven by the concentrated replenishment of downstream paper packaging enterprises, and the increase in procurement volume showed positive support. The pace of paper mills destocking was relatively smooth, and paper prices continued to rise. The upward trend continued until the end of May.

The second round of market trends (June October): The price of corrugated paper shows a "V" shaped trend, with a price increase of 0.84%.

From June to July, the corrugated paper market was affected by the lack of sustained follow-up on the demand side, resulting in a price rebound. In addition, as the industry sees an increase in air quality, the market has entered a downward channel. Although the shutdown and maintenance of upstream paper mills have increased, and the supply of spot goods has decreased, there is still no significant improvement on the demand side. The pattern of oversupply has not changed, and bearish prices have declined, which is the second bottoming out cycle within the year. From August to October, the market stopped falling and rebounded. With the increase in the scope of upstream paper mill shutdown and maintenance, local supply reduction supported the price rebound. In addition, the increase in orders for National Day and Mid Autumn Festival has eased the supply-demand contradiction, which is beneficial for the upward movement of paper prices.

The third round of market trends (November December): The price of corrugated paper first fell and then rose, with a price drop of 1.32%.

In November, the corrugated paper market was affected by weak demand, and paper mills adjusted prices flexibly, leading to an increase in bearish sentiment in the market. But with the issuance of price increase letters by large-scale paper mills, some bases have even risen for three consecutive rounds, and the market's bullish sentiment is gradually heating up. The market demand did not significantly increase in December, but driven by the price increase letter from large-scale paper mills, businesses showed optimistic expectations for future demand, and corrugated paper prices showed a mild upward trend.

What will be the trend of corrugated paper in 2024?

Upstream raw materials: Most of the upstream raw materials for corrugated paper are waste paper, and the price fluctuations of corrugated paper are basically linked to the price of waste paper. In 2023, the overall price of waste paper showed a weak downward trend. As of December 31, the average purchase price of A-grade waste yellow cardboard in Zhejiang Province was 1,616 RMB/ton, a decrease of 17.3% compared to the average price of 1,954 RMB/ton on January 1.

After the public health incident in 2023, China is in the recovery stage, and the economic growth rate has slowed down compared to previous years, leading to limited boost in terminal demand and a chain reaction on the waste paper industry, resulting in a weak market trend. In 2023, the country will optimize and adjust its tax and fee policies to promote the continuous expansion of consumption, thereby driving the raw paper market and boosting the waste paper market. Starting from January 1, 2021, the "ban on waste" officially came into effect, and China has completely banned the import of foreign waste paper, resulting in a shortage of waste paper raw materials. On June 20, 2023, a new version of the plastic restriction order was issued, accelerating the process of replacing plastic with paper and increasing the demand for packaging paper, thereby driving the growth of demand for waste paper. However, from the perspective of market mentality, cautious wait-and-see sentiment still dominates the market. Paper mills often adjust prices in real-time based on their own shipping pace and inventory situation. Downstream customers continue to buy on dips, and the pace of essential procurement remains unchanged. Therefore, prices have not experienced a strong rebound.

In terms of production capacity and output: In 2023, the corrugated paper market has a relatively loose supply, and the corrugated paper industry has further increased production capacity, with a new increase of about 2.77 million tons. However, some paper mills have switched production and combined with long-term shutdowns, resulting in a decrease of 1.53 million tons in comprehensive production capacity and a net increase of 1.24 million tons. The operating load rate of the corrugated paper industry will remain around 60% in 2023, which is unchanged from last year. However, the increase in production capacity has led to an increase in supply. According to the latest data from the National Bureau of Statistics, from January to December 2023, the national production of machine made paper and paperboard reached 144.055 million tons, a year-on-year increase of 6.6%.

In terms of imports: The import tariff adjustment will be implemented in 2023, and the import volume of corrugated paper has increased significantly. According to data from the General Administration of Customs, the import volume of corrugated paper in China reached 3.5911 million tons from January to December 2023, a year-on-year increase of 47.82%; From the monthly data, except for January, the import volume has increased significantly year-on-year. The highest import volume of the year was in November, with an import volume of 369,300 tons, and the lowest point occurred in January, with an import volume of 167,900 tons.

Under the positive impact of import tariff adjustments, domestic import enthusiasm has increased. In 2023, the import volume of corrugated paper was the second highest in nearly five years, second only to 3.9667 million tons in 2020, an increase of 1.1616 million tons compared to 2022. Since the implementation of tariffs in January, the average import price in January was $394.11 per ton, while in December, the average import price was $356.92 per ton, a year-on-year decrease of 9.12%. From the difference in average prices, the zero import tariff policy has a significant impact on the average import price of corrugated paper.

In terms of demand: The recovery of demand in the corrugated paper market in 2023 is still relatively slow. Looking at different industries, the production and sales of white goods have significantly improved, the express delivery volume has returned to high growth, and the consumption of food and beverages has steadily increased, providing support for the demand for corrugated paper. Affected by exports and the real estate market, the demand for electronic products, textile and clothing products, cultural, sports and entertainment products, as well as furniture and home decoration product manufacturing continued to be under pressure year-on-year, dragging down the recovery of corrugated paper demand in 2023. It is expected that domestic consumption will continue to steadily recover in 2024, and the drag on demand from real estate related consumer goods and goods with a high proportion of exports is expected to gradually ease. The growth of apparent consumption is expected to further accelerate.

Looking ahead to 2024, the supply and demand situation in the corrugated paper market may continue to optimize, and the prices of the main raw material waste yellow cardboard may continue to be under pressure, with prices fluctuating in the low range. The cost side lacks support for the price trend of corrugated paper. The corrugated production capacity on the supply side will continue to maintain high growth in 2024. According to published data, the planned new production capacity for corrugated paper in 2024 is about 1.75 million tons. In addition, the zero tariff policy for corrugated paper imports will continue to be implemented in 2024, and the import volume will remain stable. The supply pressure on the corrugated paper industry still exists. With the continuous increase of domestic policies on the demand side, the policy effect is gradually becoming apparent, which is conducive to the recovery of consumer environment and consumer confidence. The growth of corrugated paper demand in 2024 is expected to moderately accelerate, which will have a boosting effect on corrugated paper prices. It is expected that the price of corrugated paper in 2024 will still be mainly adjusted by market supply and demand. In the first quarter, production and demand will decrease due to the impact of shutdown and maintenance during the Spring Festival holiday, but there may be a possibility of price increase after construction.

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