- We recently attended a RISI Asian Conference to try help understand how China will fill its fibre gap following the RCP ban and to what extent this will impact global containerboard trade flows. In this note, we provided insights gained into Global Recovered Paper.
- YTD RCP imports into China are down 48% (2019: -39%), but with regional differences: Western Europe was hit the hardest (-88%), followed by Japan (-39%), while North America (-25%) held up the best (US RCP has high virgin fibre content).
- China’s fibre balance has deteriorated due the recovered paper ban: The self-imposed fibre shortage caused lower paper and board production. Additionally, there has been a trend to reduce “overpacking” and with slower economic growth, demand has also been weaker. Virgin pulp could help reduce the gap but depended on cost and availability – unbleached kraft pulp places a cap on how much can be used. Nevertheless, the RCP ban has driven an increase in containerboard imports. China will decide whether containerboard imports are a ST or LT solution.
- Recycled pulp can help bridge China’s fibre shortage: Currently, recycled pulp imports from the US have no import tariffs and there are no well-established regulations, quality standards or specifications for imported recycled pulp. The US supplies c.15% of China’s recycled pulp, with the remainder mostly from Other Asia. Current planned recycled pulp projects total c.7mt (mostly US & South East Asia).
- Other Asia’s growing containerboard capacity to provide underpin for RCP: This is to support domestic demand and increasing exports to China. As mentioned in our RCP ban update note, new containerboard capacity includes investment by Chinese companies. This should provide an underpin for domestic RCP as well RCP imports.
- There is massive upside potential for Other Asia RCP imports to increase; however, dependent on RCP import policies: Indonesia introduced a new policy last year, which saw a drop off in imports. Doors are still open in India and South Korea, however, with an increasing focus on quality.
- Following the RCP ban, China’s domestic RCP collection rate improved, but not materially: There is limited room for higher domestic collections and recovery rate, for two key reasons. Primarily, the real rate is already as high as >80% as China remains an export driven economy. If this changes, there would be room for higher collections. Secondly, there are concerns around domestic quality due to the lower virgin fibre content.
- Domestic RCP collection in China and Other Asia unlikely to reduce fibre gap: Other Asia to see limited growth from domestic collections due to less efficient recycling systems and similar to China, net exports reduces optionality to increase domestic RCP collections.
- Uncertainty for the Global recovered paper outlook remains: Will Other Asia follow China’s footsteps in terms of tightening controls on RCP imports and whether China increases regulation around recycled pulp imports. Demand for RCP in North America will increase on the back of growing paper and board demand as well as recycled pulp production. The quantum of the fibre gap in China will be dependent on how comfortable China is with a sharp increase in containerboard imports. Other Asia will pick up China’s slack in terms of RCP imports for domestic production as well as containerboard exports into China.
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