Packaging / Advertising & Office

The peak season is not busy, in order to cope with inventory pressure, two South China paper giants respectively announced shutdown plans. It is indeed an extremely anxious matter why paper companies announced the shutdown in advance and the subsequent market trend of packaging paper.

This afternoon, Guangdong Lee & Man suddenly announced the shutdown and maintenance plan for the PM7 and PM9 paper machines. At the same time, another paper giant Jinzhou announced that its Dongguan base PM4PM5PM6 would be shut down for 24 days.

The downtime announcements of the two paper companies reflected that the surplus of low-grade raw paper was quite serious. In particular, the downtime given by Lee & Man turned out to be as long as four months, indicating that Lee & Man has basically given up the last four months of production capacity of these two machines.

In Bao Xiaobian's opinion, the two paper companies' decision to shut down to insure their prices should be based on the following considerations:

1. Energy costs, environmental protection costs, high waste paper pulp, and low-grade cardboard paper are almost unprofitable. Instead of fighting a price war, it would be better to simply shut down. Especially after the import of foreign waste was completely banned this year, the national waste remained high at around 2500 for many years, and the import of US waste paper pulp from the southeast was also due to the looting of Southeast Asian countries, which caused the value of foreign waste to double. According to the latest quarterly survey of MRF in the region by the Northeast Recycling Commission (NERC), the price of US waste paper in the second quarter of this year was as high as $125, a year-on-year increase of 144% and an increase of 41% over the first quarter of 2021.

2. There is news from the Yiwu Small Commodity Market, the world's largest commodity market, that the peak export season has ended ahead of schedule, and the peak production season for Jinjiuyin and Ten may not exist. In the first seven months of this year, China's exports to the United States increased by 36.9%, which also proved that a large number of export orders have been delivered ahead of schedule. In addition, the latest data shows that the cross-strait container freight index (TWFI) composite index fell, and both the export component index and the import component index fell.

3. According to survey data, it is estimated that the domestic CPI in August will rebound to 1.1% year-on-year, and the PPI will hit a new high this year of over 9%. The scale of new RMB loans and social financing that month will rebound to 1.4 trillion yuan and 2.7 trillion yuan; the year-on-year growth rate of M2 is expected to fall to about 8.2%. The long-term high scissors gap indicates that the upstream raw material price increase cannot be transmitted to consumers. If a paper mill forcibly raises prices, not only will it not be sought after by customers, but it may also be subject to antitrust investigations. Under weighing, downtime is the best policy.

4. The country expands the scale of infrastructure construction to prevent economic stalls, leading to divergence in raw material prices. Raw materials such as steel, cement, and coal performed strongly, but consumer raw materials such as raw paper may turn down.

5. Although downtime will bring huge economic losses, low-price competition may bring about a double-kill situation of stock prices and profits.

For the packaging industry, the severe test has just begun. Although the epidemic has given China's exports a respite, the consumption situation of residents is not optimistic.

Bao Xiaobian calculated an account. From January to July this year, my country’s GDP was about 62 trillion yuan, but the national general public budget expenditure was 13.8 trillion yuan, and the national fixed asset investment (excluding rural households) was 30.25 trillion yuan. , The total retail sales of consumer goods is 24.68 trillion yuan, and the national government fund budget expenditure is 4.94 trillion yuan. The total of the four is 73.6 trillion yuan, which is obviously not enough to make ends meet. In the long run, domestic demand is really not enough to support the current supply-side production capacity.

After some calculations, Bao Xiaobian found that the country's measures to prevent economic stalls by expanding the scale of infrastructure in the near future are particularly detrimental to the packaging industry.

Take a look at a set of data: the total disposable income of residents nationwide from January to July 2021 is 28.95 trillion. Among them, commercial housing sales are 10.6 trillion yuan; automobile sales are about 2.4 trillion yuan; car maintenance costs are about 240 billion yuan; education, culture and entertainment consumption expenditure is 1.67 trillion yuan; transportation and communication consumption expenditure is 2.27 trillion yuan; residential consumption expenditure is 4.29 trillion yuan; and healthcare consumption Expenditure is 1.52 trillion. Calculated in this way, the total consumption of food, tobacco, alcohol, clothing, daily necessities and services, and other goods and services is only 5.96 trillion. In other words, although there are 1.4 billion people in China, the total amount of food, clothing, and use is less than 6 trillion (including service fees). Therefore, the challenges faced by the consumer product terminal industry now and in the future are particularly huge, which is why packaging and printing companies that rely on domestic sales have frequently closed down in recent years.

As a result, Xiaobian Bao made a bold guess: Not surprisingly, the overall order volume of the packaging industry may continue to decline in the future, but sales maintain a growth trend, and its development path is similar to the liquor industry in the past five years.

After reaching a historical peak of 13.58 million kiloliters in 2016, the production of liquor has been declining. In just five years, liquor consumption has almost been cut in half. But during this period, the price of liquor has risen from RMB 120-200 per bottle in 2016 to RMB 150 per bottle. The price of first-line liquor such as Moutai is more than 1,000 yuan/bottle, while the folk Moutai is even more expensive to 3,000-3500 yuan. Affected by this, although the order volume of liquor packaging has continued to decline, the output value of liquor packaging has grown against the sky.

However, the decrease in orders has pushed up prices, but the increase in prices will further inhibit sales. If this cycle continues, the consequences will be disastrous.

Finally, Editor Bao would like to offer a good word for many business owners: If companies want to survive in the next few years, they should expand export orders and expand new consumer orders as much as possible.