Plastic Ban" Opens Up Huge Space for Paper Packaging: How Are Shandong Paper Companies Switching Tracks

Driven by economic recovery and rebounding consumption, the paper industry showed a broadly rising trend in its first-quarter results. Recently, a number of listed paper companies, including Shandong-based papermakers such as Sun Paper and Chenming Paper, released first-quarter earnings forecasts, with most reporting substantial growth and many even doubling. Why has the paper industry grown so rapidly? The impact of the "plastic restriction order" should not be underestimated.

Starting January 1 this year, non-degradable plastic bags may no longer be used for shopping in municipalities directly under the central government and provincial capitals such as Beijing and Shanghai; disposable plastic straws will also disappear from all beverage shops nationwide; when dining at scenic spots in cities at or above the prefecture level, disposable plastic tableware can no longer be "served"...

As demand for paper products and pulp grows sharply and prices rise rapidly, many paper companies are switching tracks to seize the new track of "paper replacing plastic".

The market for paper products in the food sector has been expanded under the strictest "plastic restriction order"

From steaming hot dry noodles to aromatic buckets of fried chicken, from tasty drinks in trendy milk tea shops to all kinds of snacks... With the formal implementation of the "plastic ban", all kinds of food are calling for high-quality green packaging, and the market for paper products in the food sector has suddenly been expanded.

All of this stems from the implementation of the strictest "plastic restriction order".

Since January 1, 2021, the production, sale and use of certain plastic products have been prohibited or restricted in some sectors in Jinan. Disposable plastic tableware will be banned in stages: by the end of 2020, the catering industry citywide was prohibited from using non-degradable disposable plastic straws; dine-in catering services in built-up urban areas and at scenic spots were prohibited from using non-degradable disposable plastic tableware. By the end of 2022, dine-in catering services in built-up areas of county towns (districts) and at scenic spots are prohibited from using non-degradable disposable plastic tableware.

Demand always gives rise to a surge of substitutes. As the "plastic restriction order" squeezes non-degradable plastic products out of the market, some commonly used applications have no choice but to turn to "paper products". In the view of industry insiders, paper products can highly substitute for plastic, and it is expected that from 2020 to 2025, demand for paper packaging products represented by folding boxboard, linerboard and corrugated paper will grow substantially, making paper products the backbone of plastic substitution. Seen in this light, Shandong paper companies including Chenming Paper will undoubtedly become beneficiaries.

Public data shows that the three major food delivery platforms - Meituan, Ele.me and Baidu Waimai - alone handle about 20 million orders a day, and a conservative estimate puts daily packaging demand at no less than 20 million units.

Data from Qichacha shows that China currently has 35,000 papermaking-related enterprises, with 5,716 newly registered in 2020, up 67% year on year. In terms of regional distribution, Shandong ranks first with 6,474 enterprises, accounting for 19% of the national total.

Using technological innovation to "step up" food-grade paper: hot drink cups, cold drink cups and paper meal boxes can all use it

Faced with the huge room for imagination that the "plastic ban" opens up for paper packaging, papermaking giant Sun Paper has actively engaged in new product innovation and seized market opportunities by optimizing its product mix, achieving remarkable results.

Under the new version of the plastic restriction order, substitution demand for folding boxboard is huge, keeping the folding boxboard industry highly prosperous. Sun Paper, as a paper company with board production capacity, has also attracted considerable market attention.

Sun Paper released an earnings forecast on the evening of April 7, expecting net profit attributable to shareholders of 1.072 billion to 1.126 billion yuan for the first quarter of 2021, up 100%-110% year on year. During the reporting period, market conditions for domestic dissolving pulp products recovered and product prices rose, greatly improving the profitability of the company's dissolving pulp products.

As early as 2019, Sun Paper attempted to enter the new materials field, developing "plastic-free coated food packaging paper", which applies barrier materials online inside the paper machine using the traditional doctor blade coating method. The product can be formed directly into cups, offers higher production efficiency and brings customers a better, more comfortable experience.

"This cooperation is a useful attempt as we move into food-grade paper, and it also lays the foundation for market expansion after the 'plastic ban'." Ying Guangdong, deputy general manager and chief engineer of Sun Paper, said the new product meets national safety standards and can be widely used in food packaging paper such as hot drink cups, cold drink cups, ice cream and paper meal boxes, achieving industry innovation and vertical extension of the industry.

In Sun Paper's food paper production workshop, the 3520 paper machine is running steadily under the control of automated programs. "Before the Spring Festival this year, we had just completed the technical upgrade of the 3520 paper machine. It can not only produce the base paper for extrusion coating needed for food packaging in the market after the 'plastic ban', but also has significantly higher capacity than before," Guo Feng, food paper production director at Sun Paper, told reporters.

If the implementation of the "plastic ban" has sparked unlimited market imagination among paper companies with the substitution space for traditional food packaging such as plastic packaging and plastic straws, then Sun Paper's insistence on expanding and strengthening its product chain and industrial chain provides an inexhaustible driving force for the company's momentum transformation and high-quality development.

Downstream demand for papermakers' folding boxboard is strong, with first-quarter capacity utilization near full production

As a leader in the paper industry, Chenming Paper has 2 million tonnes of folding boxboard capacity. It is understood that Chenming Paper's folding boxboard products currently hold a market share of about 20%. GF Securities believes that future growth in industry supply will be limited, and the continued implementation of the plastic restriction order will increase industry demand and push up folding boxboard prices.

In fact, based on a scientific analysis of industry development trends, Chenming Paper began planning its full industrial chain layout more than a decade ago. Starting in 2005, Chenming Paper successively built five pulping and papermaking production lines featuring cutting-edge international technology in Zhanjiang, Guangdong. Since 2018, Chenming Paper has completed two major pulping projects and two major papermaking projects in Huanggang and Shouguang, which have now gradually begun to generate returns. At present, Chenming's wood pulp capacity is around 4.3 million tonnes, making it the largest pulp and paper enterprise in China.

Recently, Chenming Paper released its first-quarter report for 2021. According to the disclosure, in the first quarter of 2020 Chenming Paper achieved revenue of more than 10 billion yuan and net profit attributable to shareholders of the listed company of 1.18 billion yuan, up 481% year on year. Net profit attributable to shareholders of the listed company after deducting non-recurring gains and losses rose 709% year on year. In its previously disclosed earnings forecast, Chenming Paper summarized the drivers of its earnings growth as "rising market demand driving both price and sales volume growth of the company's machine-made paper, and the prominent cost advantage of pulp-paper integration under the 'waste import ban' and the 'plastic restriction order'."

Northeast Securities analyzes that downstream demand for Chenming's folding boxboard is strong. Against the backdrop of the phase-out of white board paper capacity and the tightening of the waste import ban and plastic restriction order, folding boxboard has substantial substitution demand from gray-backed white board paper and non-degradable plastics. The company's first-quarter capacity utilization was near full production, and demand is expected to remain hot throughout the year.

According to CCTV News, at a large pulp and paper enterprise in Rizhao, Shandong, production line workers have adopted a "three-shift" system. Each shift works eight hours, and the machines run at full load around the clock. As a result, daily folding boxboard output is around 1,600 tonnes, and 500,000 tonnes of folding boxboard capacity has already been completed this year.

Industry insiders analyze that after the market expands, the industrial chain advantages of leading enterprises will have more room to play, and the marginal cost advantage derived from scale will in turn drive higher marginal benefits. This logic has been confirmed many times in the development of leading companies such as Chenming Paper and Sun Paper. "The progress of the plastic restriction order and the pace of company capacity will both affect the industry."

However, from a long-term perspective, thick, sturdy, environmentally friendly and convenient folding boxboard may become the mainstay of the "paper replacing plastic" transformation.

——This article is reprinted from China Packaging Network (pack.cn). Original link: http://news.pack.cn/show-377244.html