2008 Paper: Environmental Protection, Talk about Environmental Protection
The closure of 6.5 million tons of papermaking capacity during the "Eleventh Five-Year Plan" period is a significant step in China’s environmental and industrial restructuring. According to official documents from the National Development and Reform Commission and the State Environmental Protection Administration, a total of 550 million tons of outdated production capacity will be phased out by 2008. This initiative reflects the government's growing emphasis on sustainable development and pollution control.
In terms of implementation, the policy began to take effect more strongly in 2007, and there are expectations that this momentum will continue into the future. It is possible that the target of shutting down 6.5 million tons of capacity could be met ahead of schedule in 2008. The affected capacity primarily consists of low-grade cultural paper, linerboard, and corrugated paper, with 40% being low-grade cultural paper and 60% being low-grade paperboard.
In 2006, the production and consumption of cultural paper stood at 12.2 million tons and 12.11 million tons, respectively, indicating a near-balanced market. For linerboard and corrugated paper, the figures were 22.8 million tons and 24.43 million tons, with straw pulp and waste pulp as the main raw materials.
Regarding the impact on containerboard, the supply and demand remain relatively balanced despite the shutdowns. New capacities added by companies like Xiaolong, Liwen, Jingxing, and Huaxing amount to about 4 million tons, matching the planned reduction. While the direct impact on supply and demand is limited, the increased market concentration may enhance the bargaining power of larger players. Additionally, due to the limited sales radius of containerboard, regional monopolies could emerge, potentially leading to price increases.
For cultural paper, the situation is different. The closure of 47% of low-grade straw pulp capacity has created a significant shortage. With strict controls on new capacity expansion and no new straw-based lines expected soon, prices are likely to rise. This shift may also drive demand for higher-quality mixed and wood pulp papers. Although some existing capacity may be repurposed, the overall supply is unlikely to meet the growing demand in the short term.
We anticipate that the average annual price of low-grade cultural paper will increase by around 15%, while high-grade cultural paper may see a 10% rise. This trend will likely lead to a structural upgrade in the market.
Beyond the 6.5 million-ton closure, new environmental standards introduced in 2008 further intensify pressure on the industry. The updated "Pollution and Paper Industry Pollutant Discharge Standard (Consultation Draft)" imposes stricter limits on pollutants like COD, phosphorus, nitrogen, and AOX. For straw pulp producers, these changes require significant investment in advanced wastewater treatment, increasing costs substantially. In contrast, wood pulp and commercial pulp mills face fewer challenges.
Large straw pulp companies, especially those in regions like Shandong and Henan, are already meeting or exceeding the new standards, giving them a competitive edge. However, smaller mills may struggle to comply, accelerating their exit from the market. As the new regulations are enforced, the industry landscape will likely become more concentrated, with long-term implications for pricing and competition.
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