(MENAFN- Asia Times) China is having to think outside the box after soaring paper prices threaten to roll up the packaging sector. In the past year, global costs have sharply increased off the back of a paper shortage.
The knock-on effect has severely hit the cardboard box industry in the world's second-largest economy, triggering higher prices.
'Demand for paper began outstripping supply last year in the United States, where the need for corrugated packaging has grown by 2% [year on year] for the last three years,' Packaging Europe, a major trade organization , reported.
To illustrate the depth of the problem, US pulp prices have jumped more than 35% in the past 12 months, according to Bloomberg.
As the shock waves reverberated throughout China's packaging industry, the Ministry of Environmental Protection decided to tighten controls on imported waste paper, which simply complicated the issue.
In March, waste imports plunged by 54.2% compared to the same period last year, data from the General Administration of Customs highlighted.
This, in turn, has created a shortage of raw materials, causing paper prices to skyrocket, Global Times has reported .
'Data from paper industry website paper.com showed that [during the second week of May], the average price of corrugated paper, the main source of cartons [cardboard boxes], was 4,711 yuan (US$738.6) per ton,' the state-run newspaper owned by the People's Daily, stated.
'[That was] a year-on-year increase of 55%, and a week-on-week increase of 8.6%,' Global Times added.
For companies selling products to the retail sector, spiraling prices are causing concern.
Shen Sheng, an industry analyst in Shenzhen, stressed that cardboard box manufacturers have seen their bottom lines squeezed as they shield increased costs from customers and consumers.
"Unlike upstream companies, most carton makers are small in scale due to their low-cost nature, [so] in order to ‘grab more customers', price competition is fierce,' Shen said.
'Raising prices means losing customers, so some may even bear losses to maintain a competitive rate,' Shen added.
But this will be unsustainable in the future, not only for Chinese companies but other industry players in the region.
Since 2009, the demand for corrugated board packaging, or cardboard boxes, has shifted eastward with Asia accounting for about 46% of the market, according to a report from Smithers Pira, a global authority on paper supply chains.
Global annual consumption value is expected to swell to about $270 billion in the next three years with consumption hovering around 160 million tonnes of board a year, which is the equivalent in weight of a fleet of 24 Liaoning-class aircraft carriers.
Companies such as Nine Dragons, one of the region's largest packaging and paper producers, and run by China's richest woman Cheung Yan, have expanded along with the sector.
Yet even the big beasts of the industry are likely to raise prices to combat increased raw material costs.
'The government's [decision to] tighten control on imported recovered paper has resulted in significant volatility in both imported and domestic recovered paper prices,' Nine Dragons, which is based in Guangdong, stated in an interim result filing to the Hong Kong Stock Exchange.
When Cheung's group is struggling to paper over the cracks, you know the situation is serious.
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