Viewing the Fragility of the Corrugated and Containerboard Price Market from the White Cardboard Market Landscape

After six months of sharp gains, white cardboard has drawn a great deal of envious attention in the market. Its price left all others far behind in the peak season and held steady without collapsing even in the off season. Just a few days ago, the leading white cardboard producers even announced a price increase of 600 yuan, once again reigniting the upward trend.

Look at other paper grades. Take corrugated paper, a grade commonly used in packaging, as an example. After riding the price-rise wave at the end of last year, it peaked in March this year and then gradually fell back, and has almost returned to the price level of early February. By comparison, corrugated paper also rises fast, but its momentum is far weaker than that of white cardboard, while it falls remarkably quickly. The tendency of corrugated paper to rise and fall easily is a particular headache for many downstream carton plants: when paper prices rise, costs increase sharply while customer order prices cannot be raised in time; when paper prices fall, not only do they lose on the materials stockpiled during the previous price rise, but customers also become less willing to place orders. The complaints are endless: it is all paper, so why is the gap between paper grades so large?

Apart from the fact that white cardboard is currently benefiting from favorable policies, this is also closely related to its industrial concentration. The industrial concentration of domestic white cardboard is relatively high. According to statistics, the four paper mills with the highest annual capacity in China's white cardboard industry are APP, Bohui Paper, Chenming Paper and Sun Paper, and these four giants monopolize nearly 90% of the domestic market.

The extremely high industrial concentration of the white cardboard industry means that when prices rise, one company raises its price and the others follow one after another, creating a very strong linkage effect; when prices fall, the leading players band together to defend prices, so prices naturally tend to rise easily and fall with difficulty.

By contrast, the corrugated paper market is more fragmented, with related paper mills of all sizes scattered everywhere and a relatively low industrial concentration. This situation tends to produce the easily rising and easily falling price pattern of the corrugated paper market, and can even lead to a rush to sell off stock when the market is poor.

Both are paper grades, so why is the industrial difference between white cardboard and corrugated paper so great? One reason lies in the degree to which paper mills have integrated upstream raw materials.

Most domestic white cardboard enterprises have already achieved integrated forest and pulp production, and new projects for forest and pulp layout and production keep coming. Judging from the new projects that the major leading companies have continuously brought into production over the past two years, they mainly focus on two priorities: expanding capacity and laying out forest and pulp. The importance of achieving forest-pulp-paper integration for paper enterprises is self-evident.

White cardboard enterprises that control upstream raw materials have greatly enhanced pricing power and profit margins, and can gain more market share by keeping prices low. Because they control upstream forest and pulp raw materials, even if their product selling price is below the market price, they can still earn the intermediate profit margin through relatively cheap raw materials, avoiding losses or even making a small profit while maximizing market share. This is one of the secrets behind the leading white cardboard enterprises' firm hold on the market.

By comparison, white cardboard enterprises without raw material production layouts are at a disadvantage in both raw material competition and price competition, and will most likely be acquired by capable paper enterprises or eliminated by the market in the future...

The upstream raw materials of the corrugated paper market mainly come from waste paper. With the full implementation of the ban on imported waste paper, raw materials are now even more concentrated in domestic waste paper supply. According to incomplete statistics, there are more than 100,000 waste paper recycling stations and baling stations nationwide, which are very difficult to integrate. Clearly, it is unrealistic for the corrugated market to raise its industrial concentration by controlling upstream raw materials.

The difficulty of integrating upstream raw materials to some extent leaves corrugated enterprises with weak bargaining power. Factory profits are constantly affected by fluctuations in raw material prices, and enterprises find it hard to secure their basic profit from raw materials. They can only adjust prices in step with raw material prices at any time, and may even lose the initiative when facing the upstream market.

The fragmentation of the downstream market also means that pricing power among corrugated enterprises is not concentrated, and factories find it difficult to gain an advantage through pricing strategies. Unlike the white cardboard giants, which can still secure profits on the raw material side even when they lower prices, if corrugated enterprises engage in a price war, both sides will truly suffer.

At the same time, price wars among corrugated enterprises also affect downstream carton plants. When corrugated enterprises engage in a price-raising battle, costs increase, which is clearly unfriendly to carton plants.

What if corrugated enterprises start a price-cutting war? Downstream carton plants may then face end customers holding back orders. After all, end customers also keep a close eye on market paper prices. When prices keep falling, they will wait to see whether paper prices will continue to drop, and may delay placing orders with carton plants. Some end customers may even ask carton plants to cut prices accordingly on the grounds that paper prices have fallen, which is also unfavorable for carton plants.

The current structure of the upstream and downstream markets also determines that corrugated paper cannot replicate the development path of white cardboard for now. So is there any way to improve the passive position of corrugated paper enterprises both upstream and downstream?

——This article is reprinted from China Packaging Network (pack.cn). Original link: http://news.pack.cn/show-359519.html