At the beginning of March, Zhejiang Jingxing Paper answered questions during a conference call with analysts on pressing issues including the Malaysia project’s construction progress, the recycled pulp market, responses to zero imports of RCP and sales of finished paper. The company reported the following:

Malaysia Project Progress

Jingxing Paper said that its Malaysia project has completed the approval for the first phase of 800,000 tons of RCF pulp and the second phase of 600,000 tons of finished paper, while the third phase of the project has been put on hold. Phase I of the project was scheduled to begin production of RCF pulp in either Q2 or Q3 of this year, however, the approval process was affected by the pandemic and Phase 1 is still under construction. If the pandemic situation improves, the company will strive to bring the recycled pulp project into the commissioning stage by the end of the year.

After the project comes online, there will be a large selection of raw materials and availability of low-grade American RCP that can be used and once the company has met its own raw material demands, the surplus can also be sold.

Market demand is strong, and finished paper inventory is thin

Jingxing said that the industry is in stable condition between the return to work, smooth production flows, and the gradual recovery of exports — creating relatively strong demand. These factors, combined with rising prices of raw materials, have prompted a price increase in paper products, which are driving steady profits. Currently, the utilization rate of paper machines is more than 95%, and Jingxing says that its high-end paper products account for 70-80% and that the company’s paper machines can produce 100% high-end paper. After the Malaysia pulp project is put into operation, the company’s product structure will have room for improvement, and the profitability per ton of paper will increase.

In order to cope with the structural changes of the raw material sources of RCP brought by China’s policy, Jingxing invested in the construction of an RCF pulp and finished paper factory in Banting Industrial Park, Negeri Selangor, Malaysia. The additional production capacity of 800,000 tons of RCF pulp in the first phase will ensure RCF demand by the Jingxing domestic production base.

According to current Fisher information, 600,000 tons of finished paper at Jingxing’s Phase II project will be corrugating medium, which is planned to be put into production in 2022. 600,000 tons of finished paper needs about 650,000 tons of RCF pulp (calculated according to 1.08 tons of RCF pulp for one ton of finished paper), and the first phase of the project of Jingxing Malaysia may still have 150,000 tons of surplus to support the demand of Jingxing’s domestic base. For Jingxing, the use of overseas production capacity to ensure fiber supply, while obtaining certain advantages in terms of cost and fiber quality, will boost company profits in the long run. Using Fisher’s cost analysis module, we can see that Malaysian containerboard to be shipped to China still has a strong cost competitiveness due to its raw material advantages, as shown in the figure below.

Average Linerboard Cost Delivered to Shanghai

Source: FisherSolve™ Next 2021 Fisher International, Inc.

At the moment, the import standards for recycled pulp are still under the approval of the Ministry of Environmental Protection and customs. Looking at the existing import methods of recycled pulp in the market, the sheet pulp import enterprises with overseas production bases will have the greatest advantage in the future. According to Fisher data, the main companies operating overseas production bases are Nine Dragons, Shanying, Lee & Man and Jingxing. In the future, with the advantages of overseas facilities, these leading enterprises may accelerate the integration of China’s containerboard industry, driving out less competitive mills, and improving the overall efficiency of the industry.