Global OCC Markets Impact of China’s import ban November 2019 Hannah Zhao Senior Economist, Recovered Paper Fastmarkets RISI 1 2019 | Fastmarkets | Outlook on Global RCP Markets
Chinese RCP import regulations 2017-2019 YTD • Mixed paper ban 55 % Announced in July 2017, took effect at the end of 2017 – • New 0.5% contaminant standard Took effect at the beginning of 2018 – • Trade dispute between China and the USA Duty on US RCP (25-30%) and US recycled pulp (20%) – • China imported 17 million tonnes of RCP in 2018, down from 28.5 million tonnes in 2016 and 25.7 million tonnes in 2017 • By the end of September, 10.3 million tonnes of import licenses had been issued for 2019, compared to 15.5 million tonnes in 2018 • The ban on all RCP: If? When? The end of 2020? 2 2019 | Fastmarkets | Outlook on Global RCP Markets
Chinese RCP imports by grade Million tonnes FALLING IMPORTS FOR ALL RCP 35 GRADES 30 • Chinese RCP imports dropped by about 27% year-over-year in the first eight months of this year after plunging by 25 nearly 35% in 2018 20 • Zero mixed paper imports since 2018 • OCC imports declined by only 14% in 15 2018, less than other grades, which fell by 34% on average 10 • OCC imports dropped by 23% year-over- year in January-August 2019, while ONP 5 and high grades imports declined by 33% and 42%, respectively 0 2015 2016 2017 2018 YTD19 • YTD: January-August OCC ONP MIX HGR 3 2019 | Fastmarkets | Outlook on Global RCP Markets
Chinese RCP imports by sourcing region Million tonnes DECLINING IMPORTS FROM MOST 35 TRADE PARTNERS 30 • Imports from the USA declined by about 27% year-over-year in January-August 2019 after plummeting by about 45% in 25 2018 20 • Imports from W. Europe fell by about 33% year-over-year in the first eight months of this year after declining by about 38% in 15 2018 10 • Chinese imports from Japan increased in 2018 but declined by 28% in January- 5 August 2019 • Trade dispute between the USA and 0 China 2015 2016 2017 2018 YTD19 • YTD: January-August N.America W. Europe Japan Other 4 2019 | Fastmarkets | Outlook on Global RCP Markets
OCC prices in different regions • Sharp drop in US and European OCC 350 3,500 prices since 2018 • Domestically collected OCC became 300 3,000 quite expensive in China due to the recycled fiber shortage issue in 2018 250 2,500 • Recent weak OCC markets because of 200 2,000 the sluggish paper packaging sector, continuous decline in Chinese imports and deceleration in Asian RCP import 150 1,500 purchases 100 1,000 50 500 0 0 2016 2017 2018 2019 US average, USD/tonne (L) German OCC, EUR/tonne (L) Chinese imported #12, USD/tonne (L) Asian imported US OCC, USD/tonne (L) Chinese domestic, RMB/tonne (R) 5 2019 | Fastmarkets | Outlook on Global RCP Markets
China’s fiber balance Million tonnes INCREASE IN PULP IMPORTS Grade 2017 2018 2019YTD CAN’T SOLVE CHINA’S RECYCLED FIBER Total wood pulp net 21.04 21.58 15.07 imports SHORTAGE ISSUE % change 12.2 2.6 4.0 • Increasing imports of wood pulp • Limited availability and high prices UKP net imports 0.65 0.80 0.48 for market UKP Recycled pulp net imports 0.01 0.30 0.46 • Sharp fall in RCP imports • Fast-growing recycled pulp imports RCP net imports 25.72 17.03 7.30 • Non-wood pulp usage Domestic RCP collection 55.87 56.94 38.65 • YTD: January-August 6 2019 | Fastmarkets | Outlook on Global PfR Markets
Chinese recycled pulp imports Million tonnes IMPORTED RECYCLED PULP HAS EMERGED AS A VIABLE OPTION 400 • Chinese recycled pulp imports surged in 2018 350 and so far in 2019, with the USA and Other Asia the major suppliers 300 • About 5 million tonnes of recycled pulp capacity 250 was announced in the USA and Other Asia, but how much of this will start up as planned? Many 200 of the announced projects are still up in the air. • No well-established quality standard or 150 specifications for imported recycled pulp 100 • Risks associated with recycled pulp investments: uncertainties surrounding Chinese 50 regulations and the regulations in the countries/regions where recycled pulp projects 0 are planned 2017 2018 2019YTD • 2019YTD: January-August Other Asia N.America Europe Other 7 2019 | Fastmarkets | Outlook on Global RCP Markets
Falling Chinese containerboard production Million tonnes 60 RECYCLED FIBER SHORTAGE 50 • Falling production for containerboard in 2018 and 2019 40 • Limited supply of domestic RCP • Higher environmental standards 30 • Demand softness because of slowing economic growth and trade 20 dispute between the USA and China 10 • Increasing imports of containerboard from mainly Other Asia and the USA 0 2015 2016 2017 2018 2019E Production Net imports 8 2019 | Fastmarkets | Outlook on Global RCP Markets
Chinese domestic RCP collection Million tonnes SHARP DECLINE IN IMPORT SHARE 90 • Improvements in domestic collection driven 80 31% by growing demand and relatively high 70 prices for domestic RCP • Support of private sector and governments 60 on resource recycling 50 • Economic transformation 40 Export driven to domestic consumption – driven increasing potential supply for 30 RCP 20 • Limited room for an increase in domestic collection and recovery rate: 10 Already high real paper recovery rate – 0 2015 2016 2017 2018 2019E Domestic collection Imports 9 2019 | Fastmarkets | Outlook on Global RCP Markets
China and Other Asia: RCP imports Million tonnes 35 OTHER ASIA CATCHING UP WITH CHINA 30 25 20 15 10 5 0 2012 2014 2016 2017 2018 China Other Asia 10 2019 | Fastmarkets | Outlook on Global RCP Markets
Other Asia: RCP import regulations and others WILL OTHER ASIA FOLLOW CHINA? • Taiwan started to limit imports of low-quality RCP in late 2018 55 % • Indonesia announced stringent restrictions on RCP imports this spring: contaminant standard and inspection and pre-inspection measures Still waiting for the final regulations – Reduction of the impurity content over several years to a targeted 0.5%? – • Vietnam: import quota system and tighten inspection measures • India: A ban on mixed paper imports soon? • Overall Other Asia Increasing quality and environmental concerns over RCP imports – Continuous increase in RCP imports driven by growing demand – 11 2019 | Fastmarkets | Outlook on Global RCP Markets
Other Asia RCP net imports Million tonnes SURGE IN IMPORTS 7.0 • Regional net imports surged from 7.2 million 6.0 tonnes in 2016 to 14.2 million tonnes in 2018 • Most countries/regions in Other Asia 5.0 registered a significant increase in imports in 2016-2018 4.0 • There is growing RCP demand and increasing availability of low-cost RCP from 3.0 the major exporting regions thanks to the decline in Chinese imports 2.0 • Regional import growth decelerated in the 1.0 first seven months of 2019 due to slowing demand and restrictions on imports 0.0 • 2019YTD: January-July India Indonesia Thailand Vietnam Taiwan South Malaysia Korea 2017 2018 2019YTD 12 2019 | Fastmarkets | Outlook on Global RCP Markets
Other Asia: RCP imports and domestic collection Million tonnes SHARP INCREASE IN IMPORTS 50 • Fast-rising import share in total RCP 45 consumption driven by demand 40 • Increasing availability of imported RCP at 35 low cost because of the decline in Chinese imports 30 • Limited growth in domestic collection 25 Less-efficient recycling systems, world’s – 20 new manufacturing hub (net “exports” of packaging materials leads to less 15 potential supply of RCP) 10 5 0 2015 2016 2017 2018 2019E Domestic collection Imports 13 2019 | Fastmarkets | Outlook on Global RCP Markets
Other Asia’s growing containerboard output and exports Million tonnes 30 INCREASE IN EXPORTS TO CHINA 25 • Growing domestic demand and exports to China 20 • Rising operating rates and new containerboard capacities 15 • Chinese paper companies’ investments in Other Asia 10 5 0 2015 2016 2017 2018 2019E -5 Output Net exports 14 2019 | Fastmarkets | Outlook on Global RCP Markets
US RCP exports by destination Million tonnes CONTINUOUS DECLINE IN 25 SHIPMENTS TO CHINA AND SLOWING DEMAND FROM OTHER ASIA 20 • RCP exports to China dropped by about 20% year-over-year in January-August 2019 after plunging by 30% in 2018 15 • US exports to Other Asia surged by nearly 80% in 2018 but the increase slowed to 5% year-over-year in the first eight months of 10 2019 Slowing demand and tightening restrictions – 5 on imports • Other Asia has become the largest buyer of US RCP 0 2015 2016 2017 2018 YTD19 • Exports to Mexico and Canada increased as well China Other Asia Other • YTD: January-August 15 2019 | Fastmarkets | Outlook on Global RCP Markets
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