China's Virgin Boxboard expansions & Trade Implications

1. Introduction: China is the largest producer of recycled boxboard grades in the global scenario and exports for the same has been increasing rapidly since 2013. However, Chinaï¾Ãƒâ€šÃ‚Æ’??s focus on virgin grades of boxboard has been increasing (especially ivory board) keeping in view its own domestic requirements. But the rate of virgin gradesï¾Ãƒâ€šÃ‚Æ’?? capacity growth overtakes the Chinese domestic consumption, creating an imbalance in the global trade in the future. Where will China shift its excess boxboard tonnage? As Chinaï¾Ãƒâ€šÃ‚Æ’??s exports increase, would the U.S and European boxboard markets face competitive pressure? How would the global trade scenario change in the near future? Can the current buyers shift towards China for their virgin boxboard supply and what are the benefits for the buyer if they procure from China? 2. Main: China was a net importer of virgin grade boxboard grades until 2011. However the recent focus and implementation of the various virgin grade capacities have transformed it into a net exporter and now (2014) China exports nearly 2 million tonnes annually. This has dramatically changed the global trade flows. If the current capacity growth continues, China would have the potential to be leaders in the virgin grades too in the future. 3. Recommendation: For buyers in other Asian countries who have been procuring virgin boxboard grades from rest of the world would be able to procure Chinaï¾Ãƒâ€šÃ‚Æ’??s Ivoryboard at a lower price as logistics plays a key role here. The European FBB is dominant in quality currently and if China focusses more on quality front too in the future, it could well displace some of the traditional export markets for U.S and EU. For the buyers in regions like Latin America, who have been procuring virgin grades from Europe, can procure ivoryboard from China at a lower price but logistics cost would add up to the total cost. However in general, the Chinese boxboard market is highly fragmented with a number of players competing for market share and hence the buyer power would be more in terms of negotiation and prices giving the current buyers another potential supplier in the global virgin boxboard market. Introduction: Global virgin carton board demand is expected to increase from 23 MMT in 2012 to 26 MMT in 2016 with a CAGR of 3-3.5% (Refer fig 1). The increase in demand will be majorly driven by China which is expected to grow at a CAGR of 8-8.5% from 2013-15 followed by Latin America and Eastern Europe. Increase in population, industrial production, consumption of processed foods, beverage and durable goods, higher standard of living, and increasing disposable income are the major growth drivers of the carton board industry.   [gview file="http://www.beroeinc.com/wp-content/uploads/2015/05/chinas-virgin-boxboard-expansionstrade-implications.pdf"]