Metallurgy / Chemicals / Rubber & Plastics

In the past six months, pulp prices have risen sharply, and they have remained high recently. Affected by this, some paper companies shut down for maintenance, but there are also companies that quietly make a lot of money.

In my country's paper industry, there is a rich Indonesian man. The two brands of Qingfeng and Zhenzhen are his industries. In addition, he also controls more than half of my country's white cardboard market. The increase in paper prices gave the rich Indonesian man a big bargain.

1/Upstream paper prices are soaring

There are many types of paper. According to different purposes, it can be divided into packaging paper, including corrugated paper used for express boxes, white cardboard for printing business cards and certificates; printing paper, including coated paper for magazines, newsprint for newspapers, etc.; There are also toilet paper and so on.

In the upper reaches of the industry, no matter what kind of paper is, prices are rising. Prior to this, Hengan International, Vinda International, Zhongshun Jierou, and Golden Hongye Paper issued product price increases notices that collectively raised the prices of daily paper products from April 1. Since May, major domestic printing paper companies and traders have issued multiple price increase letters.

Among the rising paper prices, cultural paper has generally risen by 200 yuan/ton; the price of white cardboard has increased particularly rapidly, reaching 1,000 yuan/ton. However, even so, it cannot keep up with the increase in the price of pulp raw materials. Many paper companies had to announce shutdowns for maintenance due to the upside-down of pulp and paper prices. According to media reports, on April 26, Shandong Huatai Paper issued a notice that it planned to suspend production and maintenance of the copper paper machine in early May; on April 27, Chenming Paper also announced that it decided to conduct an inspection of cultural paper in mid-to-early May. The machine is shut down for 10 days for maintenance.

This raging round of price increases is mainly due to the increase in the prices of foreign pulp raw materials, and my country's dependence on wood pulp imports is above 60%.

In addition, another reason is the imbalance between supply and demand. Relevant national authorities announced in November 2020 that from 2021, China will completely ban the import of solid waste, and applications for the import of solid waste will not be approved. This also means that China will completely ban the import of waste paper by 2021. On the one hand, the import of waste paper is prohibited. On the other hand, my country's demand for paper is fixed and large. For example, when we buy goods from e-commerce, we have a very large demand for paper packaging. This has led to an imbalance in the domestic supply and demand environment and increased demand for imported pulp. The price increase of foreign pulp is also inevitable.

The price changes caused by this imbalance in supply and demand can be fed back from the futures prices of pulp. Starting from November 2020, pulp prices have risen by about 1/3 in the next six months, and have remained high since then.

The increase in shipping prices is also an important factor in the increase in pulp prices. According to data from Shanghai Shipping Exchange, since the second half of 2020, my country's import container freight index has been rising. A practitioner in the foreign trade industry told the city circles that the price of their goods sent abroad by sea has doubled in the past year. "We mainly export turnbuckles and other accessories, the unit price is relatively low, and now the freight is more expensive than the product itself."

In addition, besides the Americas, a large part of my country's imports of puree pulp comes from Finland, Sweden and other European countries as well as the Russian Federation. Pulp prices are traditionally priced and settled in the U.S. dollar as the base currency. This kind of foreign trade is easily affected by changes in currency exchange rates.

Since last year, the U.S. dollar has depreciated sharply due to factors such as the extremely loose monetary policy of the United States. On the surface, the depreciation of the dollar is beneficial to my country's bulk commodity imports, but because many pulp importing countries are located in Europe, this is not the case after specific calculations.

Assuming that the pulp is now 1,000 US dollars a ton, the exchange rate of the euro to the US dollar is 1.22, that is, the euro is 1000/1.22 = 820 euros. If the euro appreciates to 1.5 against the dollar, then a ton of pulp is 1000/1.5=666.66 euros. Because it is traditionally settled in U.S. dollars, this means that the original one ton of pulp sold to China was 820 Euros, but now it can only be sold for 666.66 Euros, which is equivalent to less profit. If you want to maintain the previous profit level, European pulp mills must raise prices to 820 euros, which is equivalent to 820*1.5=1230 US dollars at this time.

Although the renminbi is also appreciating, the price increase has been significantly greater, which has caused the price of China's imported pulp from Europe to rise.

Everything makes the upstream and downstream of the paper industry miserable, but unexpectedly, there are still some companies that make a lot of money.

2/A good day for industry giants

Most of the big companies in the paper industry are making money to catch up with this wave.

The gross profit of paper products is low and the premium ability is weak. The performance growth of production enterprises is mainly realized by expanding production capacity. Galaxy Securities analyst Li Ang said to the market: “The growth of paper companies requires a round of proactive large-scale investment. After a long ramp up of production capacity, they can finally release production capacity to achieve growth.”

In addition to the need for heavy asset investment, the paper industry has obvious periodicity. Upstream pulp prices and downstream market demand will affect paper prices and thus the profits of paper companies. When the market conditions are good, the profits are overflowing, and when the market conditions are not good, you can also panic. Some small companies will even be forced out during the adjustment period due to high raw material prices and other reasons.

Companies that want to survive in this asset-heavy, strong-cycle industry, and live well, can only use the courage to be the first in the industry. The reason is simple. First, large scale can produce economies of scale and reduce the cost of unit output; second, cheaper raw materials can be purchased; third, the market share is large enough to make profits when supply exceeds demand, or when supply exceeds demand, Turn off part of the output and guarantee the price.

There is a company called Bohui Paper in Zibo, Shandong, which has become the second largest producer of white cardboard in my country by continuously expanding its production capacity. With this price increase, the company ushered in a long-lost "good day".

Bohui Paper was established in 1994. The company mainly produces white cardboard, corrugated paper, linerboard and other products. Among them, white cardboard is the company's most important product, and it is also the product that supports the performance. White cardboard uses wood pulp as raw material and has a wide range of applications. White cardboard is used for playing cards, clothing tags, milk boxes, cigarette boxes and cosmetic packaging boxes.

Bohui Paper's white cardboard production capacity was originally ranked third in the industry, but the company has been expanding. In 2012, the company's white cardboard production capacity was only 550,000 tons. After the new project was put into production, it increased to 1.4 million tons in 2018.

The continuous expansion of Bohui has aroused the vigilance of the industry leader Asia Pulp & Paper Co., Ltd. (APP). In 2018, the two sides began to engage in price wars. In addition, at that time, the price of pulp fell, and the stock pulp price of Bohui Paper was higher than the market price, resulting in higher costs. The company experienced a two-year performance downturn. In 2018, Bohui Paper's net profit attributable to its parent company fell to 260 million yuan from 860 million yuan in the previous year. In 2019, the company's net profit was cut in half again, leaving only 130 million.

At the beginning of 2020, Bohui Paper was acquired by APP. The two parties have less competition and improved price control ability, coupled with the sharp increase in paper prices. This time, Bohui Paper finally waited for the air to make a fortune. In the first quarters of 2020 and 2021, Bohui Paper's revenue increased by 44% and 55% year-on-year, respectively; the net profit attributable to the parent company increased by 524% and 337% year-on-year.

Revenue growth is inseparable from the increase in production capacity brought about by the previous contrarian expansion. In 2019, the company's white cardboard production capacity reached 2.15 million tons, ranking second in the industry. At the same time, the company's profitability has also been greatly improved. In 2020, especially in the first quarter of this year, Bohui Paper's gross profit margin and net profit margin will improve. Among them, the gross profit margin is as high as 33%, almost twice that of last year.

The substantial increase in gross profit margin was largely due to the increase in product prices. According to "China Business News", in June 2020, the price of Bohui Paper's white cardboard was 5,100 yuan/ton; it increased to 7,500 yuan/ton by the beginning of 2021, and now it has reached the level of 10,000 yuan per ton.

The product price doubled in less than a year. In addition to the boom in the industry, Bohui Paper was able to rise so much. Another important reason was that after Bohui Paper was acquired by Sinar Mas Group, both of them occupied the market in the white cardboard industry. The rate exceeds 50%, and the pricing power is greatly increased.

The founder of Bohui Paper is Yang Yanliang from Zibo. The company was silent for two years and finally ushered in a good day, but in the end it was no longer Yang Yanliang's family who benefited, but the Indonesian rich behind APP.

3/APP picked up a big bargain

APP's parent company is Cotai Group. The founder of the Cotai Group is Huang Yicong, a Chinese. He was born in Quanzhou, Fujian in 1921. When he was 9 years old, he followed his mother to Indonesia to reunite with his father. In 1962, Huang Yicong founded the Cotai Group, which was the first to make a fortune in the edible oil and paper business. After the business grew bigger and bigger, he began to dabble in finance, real estate and other industries. Indonesia International Bank is also an industry of the Cotai Group.

Cotai Group was once rated as the largest consortium in Indonesia by Forbes. It also has many industries in China, such as investing in Huafeng instant noodles, Grand Slam cooking oil, and Shanghai Cotai Bund Center. Related to papermaking is the APP under the group. APP is one of the top ten paper companies in the world. The company has achieved a layout in the forest, pulp and paper industry chain.

In the Chinese market, as of the end of 2019, APP China has 17 forestry companies with an annual processing capacity of about 11.8 million tons, producing cultural paper, industrial paper, household paper and other products. The "Qingfeng" paper that consumers are more familiar with is the brand of APP China. In 2019, APP China's sales in China were approximately RMB 65.1 billion.

APP China is my country's largest white cardboard manufacturer. Bohui's continuous expansion and price war have aroused the company's vigilance. Beginning in May 2019, APP China, through its subsidiary Ningbo Asia Paper Tube Carton Co., Ltd. (Ningbo Tube Box for short), has continuously purchased shares of Bohui Paper in the secondary market. Half a year later, in November 2019, Ningbo Tube already held a 20% stake in Bohui Paper, costing about 1 billion yuan.

When the outside world was worried about whether Bohui Paper would lose control, at the beginning of 2020, the actual controllers of Bohui Paper, Yang Yanliang and his wife, signed an equity transfer agreement with APP China to transfer 100% of the equity they held in Bohui Group. To APP China. Bohui Group holds 28.84% shares of Bohui Paper, a listed company. In addition to the 20% shares of Bohui Paper previously held by Ningbo Tube Box, APP China holds 48.84% of Bohui Paper and becomes the actual controller of the company. .

APP China has its own forest farm and pulp production base, so the cost of raw materials is more advantageous than other paper companies. After being acquired by APP China, Bohui Paper's pulp costs will be improved.

Moreover, after the two parties are combined, the business can be more synergistic. Take transportation as an example. Paper is a product with low unit price but large volume. Cross-regional freight is a big expense for enterprises. Bohui Paper is located in Shandong and has a production base in Jiangsu, so it has an advantage in the northern market. APP China’s advantage lies in the south. After the merger of the two companies, they can collaborate nationwide to take care of the national market with lower freight costs.

Now APP China has more than 50% of the market share of white cardboard, and the pricing power is stronger. As a result, there was the scene of skyrocketing paper prices mentioned above.

Since the second half of 2020, Bohui Paper has been sought after by capital, and Huang Zhiyuan (son of Huang Yicong), the rich Indonesian man behind APP China, has made a big deal. When Yang Yanliang and his wife transferred the equity to APP China, the transfer price per share was 5.36 yuan. As of the close on June 4, the company's stock price has reached 15.19 yuan. In addition to the stocks that Ningbo Container Management bought in the secondary market before, APP China's shares in Bohui Paper have appreciated by nearly 7 billion yuan.

In the first quarter of this year, APP China also increased its holdings of two other white cardboard manufacturers, Chenming Paper and Sun Paper, through its subsidiaries Ningbo Box Tube and Bohui Paper. The strength of the paper tycoon was once again demonstrated.

Penetrating the ups and downs of paper prices is behind the surging capital war.