Global paper packaging industry disrupted by changes in China’s recovered paper (“RCP”) packaging policy

5 July 2018

The implementation of China’s new RCP import restrictions will be tough for US and European RCP exporters and provide opportunities for India and South-East Asia. Containerboard and boxboard producers outside of China are currently benefiting from lower recycled fibre prices. In China, these producers are facing a growing challenge of rising prices across the chain, according to Rabobank’s latest Supply Chains report “Turning a New Page: The Impact of China’s RCP Policies on Global Paper Packaging”.

China’s government has been implementing its long-term strategy to strengthen its waste quality policies since 2013, while RCP import restrictions have fast-tracked since 2017. The potential effect of these policies on the global paper packaging supply chain is high, as China has historically been the world’s largest importer of RCP; importing 28mln tonnes of RCP in 2016.

At the same time, China is also an importer of strategic importance to the EU and the US. In 2016, China accounted for about 50% of the EU’s total RCP exports and almost 70% of the US’ exports. Changes in import restrictions therefore have a significant impact on RCP exporters in both the EU and the US.

Increased costs across China’s paper supply chain

China’s policy measures have created an import gap for various RCP grades that poses challenges for China’s paper packaging industry. For example, the import gap of old corrugated containers (“OCC”) this year is estimated by Rabobank to be between 3.2mln tonnes and 8.2mln tonnes. This has led to higher production costs across the corrugated paper supply chain. In turn, this will be forcing a structural change as it will partly accelerate consolidation of the domestic industry and drive Chinese corrugated players to look for input from other sources. This is either via improving local sourcing of RCP, via imports of e.g. containerboard, or via foreign investments. Improved local sourcing would be facilitated through investments in the recycling infrastructure from Chinese authorities as well as private companies.

New thinking required by the EU and the US

“Non-exporters of RCP, like Brazil, are hardly affected by China’s recent paper packaging policy changes, as we also do not expect China to compensate the import shortfall by importing substantially more pulp”, says Susan Hansen, Rabobank Global Strategist - F&A Supply Chains. “The US and Europe, on the other hand, do suffer, being the largest RCP exporters to China. Both exporters are currently facing a large domestic RCP oversupply and significant price declines for OCC and mixed paper. At the same time, margins of producers of containerboard, corrugated paper and boxes are positively affected as the price of these products remain high, driven by healthy demand“.

“Dealing with the RCP oversupply on a structural basis, however, requires new thinking from the US and the EU”, says Susan Hansen. “Increasing RCP exports to new markets, such as Mexico, India and South-East Asia, present an opportunity, albeit a limited one due to growing processing capacity constraints in Asia. Diversion to landfills or incineration are also not viable long-term options due to legislation and/or capacity constraints. In the longer term, substantial investment in innovative ‘quality’ recycling infrastructure is therefore a necessary step both in the US and the EU”.

Opportunities for India and South-East Asia

Since China introduced its more restrictive RCP import measures, many RCP cargoes have been diverted to India and South-East Asia, giving paper mills in this region access to cheaper feedstock. The increased volumes of RCP might result in growth in containerboard exports into China. Investments in milling capacity across India and South-East Asia are likely to be needed in the medium term to keep up with a gradually growing level of capacity constraints. In addition, the high prices of feedstock in China might also be driving Chinese companies to set up or acquire new mills across India and South-East Asia.

Find the report here.


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