What is the state of China’s fiber balance and how will that impact global fiber markets?

Hannah Zhao, director of fiber, explores how China's plans to restrict recovered paper imports have reshaped global fiber markets

It has been five years since China first announced its plan to restrict recovered paper (RCP) imports in the spring of 2017, and there is no doubt that China’s RCP import policy has dramatically reshaped not only the Chinese fiber markets, but also the global fiber markets.

  • China stopped buying RCP completely at the beginning of 2021
  • India and Southeast Asia, sharply increased their RCP intake to feed their new paper and board machines and recycled pulp lines, despite RCP import restriction regulations enacted by some countries in this region
  • Chinese recycled pulp imports have surged over the past few years to fill its demand for high-quality recycled fiber
  • Chinese consumption of virgin fiber expanded significantly through the growing imports and domestic pulp production.

The Chinese paper and board industry has looked for different ways to alleviate the severe recycled fiber shortage over the past couple of years.

How has China’s fiber balance changed over time?

Chinese paper and board manufacturing used to rely heavily on recycled fiber thanks in part to its availability at reasonable prices. But once the import restrictions were put in place, the Chinese paper industry lost access to relatively cheap imported RCP. Chinese RCP imports plunged from 25.7 million tonnes in 2017 to about 500,000 tonnes in 2021.

Chinese domestic RCP collection increased by 5 million tonnes during this period thanks to continuous improvements in its paper recycling system. And Chinese paper companies invested in numerous recycled pulp projects, mainly in North America and Southeast Asia, to obtain recycled fiber from overseas. But the uncertainty associated with the recycled pulp trade and the Covid-19 pandemic hindered the advancements of some projects.

Chinese recycled pulp imports surged from virtually nothing in 2017 to about 3.6 million tonnes in 2021, while in total about 9 million tonnes of recycled pulp projects were planned or announced during the past five years.

Clearly, the growth in domestic collection and recycled pulp imports was far from being enough to make up the sharp fall in its RCP imports. As a result, Chinese producers began to use more virgin pulp, both imported and domestically produced. Chinese wood pulp imports increased by about 3 million tonnes during the past five years, while its domestic virgin pulp output expanded by about 2 million tonnes.

Overall, the share of recycled fiber in the total fiber furnish declined significantly from about 69% in 2017 to 60% in 2021. Changes in China’s paper and board manufacturing structure, such as the slowdown in recycled containerboard and boxboard production and an increase in tissue and virgin boxboard output, also contributed to the shift from recycled fiber to virgin.

Will the shift from recycled fiber to virgin continue in the future?

Probably. Despite the various methods China used to alleviate the recycled fiber shortage, the Chinese recycled fiber markets have remained very tight over the last couple of years.

In 2017, when the Chinese government officially announced its plan to restrict RCP imports, Chinese domestically collected post-consumer OCC prices shot up from RMB 1,427/tonne in 2016 to RMB 2,232/tonne in 2017, much higher than the previous peak of RMB 1,837/tonne in 2011. Prices continued to climb in 2018, reaching an all-time high of RMB 2,856/tonne, and have never fallen below RMB 2,000/tonne on an annual basis since then.

After cooling somewhat in 2019-20, the recycled fiber market tightened again in 2021, with annual prices of domestic post-consumer OCC reaching RMB 2,688/tonne. Prices stood at about RMB 2,700/tonne in May despite the slowdown in the Chinese economy and fiber demand caused in part by the massive COVID-19 lockdowns earlier this year.

The price for Chinese OCC in May was about 90% higher than the annual price recorded in 2016, while the US domestic OCC price was only 40% higher in the same comparison.

Chinese import recycled pulp prices declined somewhat to $455-470/tonne in May, down from an average of $470-500/tonne last year. Nevertheless, this is still very expensive. At some point, the cost of utilizing recycled fiber could be very close to or even higher than certain types of virgin fiber.

Since 2021, about 37 million tonnes of virgin fiber capacity, including 5 million tonnes of non-wood pulp capacity, in China has either been started up or announced, the majority of it integrated. Even after we consider possible cancellations, the expansion in Chinese virgin fiber capacity would still be massive.

We are left with many questions

  • The Chinese government has always encouraged forest-pulp-paper integration, but will China have enough forest to support these 32 million tonnes of wood pulp lines?
  • How many tonnes of wood chips will China have to source from overseas?
  • Will Chinese virgin pulp imports slow over time with the increase in domestic pulp production?
  • Will non-wood pulp play a bigger role in China’s fiber balance?
  • Will constraints on raw material supply for non-wood pulp remain a big issue despite the technological improvements in non-wood pulp manufacturing?
  • What are the pros and cons of imported recycled pulp compared with wood and non-wood fiber?
  • How will China’s carbon-neutral plan impact Chinese pulp and paper companies’ investment decisions on fiber?

We recently started working on a series of special studies focused on the Chinese and global fiber markets and are attempting to answer some of these important yet complicated questions. If there is a topic you are interested in and would like to see covered, please contact Hannah at hzhao@fastmarkets.com. These studies are scheduled to be released in the second half of the year.

We’ll also be exploring the impact of changing demand in China on global woodfiber markets at our Woodfiber Conference 2022, taking place this year in Lisbon, Portugal, between September 27 and 30. Learn more about this event.

About the author

Hannah Zhao, Director, Fiber, is the co-author of the Outlook for Global Recovered Paper Markets: Shifting International Trade Flows, the Global Impact of China’s Recovered Paper Import Regulations, and the OCC/UKP Market Analysis and Outlook special studies, as well as the World Recovered Paper Monitor and the World Pulp & Recovered Paper Forecast. She can be reached at hzhao@fastmarkets.com.

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