2019 will continue to be a turbulent year for both the US and Chinese tissue producers. The uncertainties caused by the trade war and RCP ban in the fibre supply end will continue to affect tissue producers. However, it seems that the US tissue producers will benefit from the situation. Both the trade war and RCP ban will result in surplus fiber supply in the US domestic market meaning fiercer price competition which is in favor of the tissue producers. Low RCP prices will benefit particularly the AfH and private label segments. The same segments will also (at least locally) benefit of the 25% tariffs and consequent declining volumes of Chinese finished product volumes exported to the US. On the contrary, the trade war and RCP ban will probably have a negative impact on the Chinese tissue industry, though not very significant. The reduced RCP import can be fairly easily replaced by other alternative fibre sources as RCP only represent a small fraction of the fiber consumed by the Chinese tissue industry. However, the fibre shortage caused by RCP ban has caused the domestic RCP prices skyrocketing which will increase tissue producers’ production cost. Despite the tariff on US pulps, there is abundant non-US BSKP available in the international markets to meet Chinese tissue producers’ demand. Therefore, the supply and price of BSKP in China is unlikely to change significantly.
US-China trade war
Since January 2018, the world’s two largest economies, the US and China, have been on a trade war. Numerous tariffs and restrictions have been imposed on goods traded between the two countries including pulp & paper products. Figure 1 presents the chronology of US-China war related to the wood pulp, RCP and tissue products. At this stage, it’s not easy to evaluate the exact impact of the trade war on the paper and board (P&B) industry, but it seems that the Chinese P&B industry has taken a bigger hit than the industry in the US. 2018 turned out to be very disappointing for the P&B industry in China. According to China Paper Association the total P&B demand declined by -4% comparing to 2017 and the production declined even further, by -6%. In comparison, for the last decade before the trade war in 2018, the P&B industry in China was growing at roughly +4% per year. However, according to the China Household Paper Industry Association (CNHPIA) tissue demand was fortunately still growing, increasing from 8.5 million ton in 2017 to 8.9 million ton in 2018 at +4.5%. It may appear to be rather good growth but when comparing to the CAGR of 8% in the past decade, the growth has slowed down substantially. In the US side, the trade war seems to have had a minor impact on the P&B market. The P&B demand in 2018 continued the stagnation trend since 2012. Tissue consumption grew marginally by 67 thousand ton totaling 7.1 million tons in 2018. If one moves the focus to international tissue trade, it’s not difficult to anticipate that the tissue trade between the two countries will be negatively influenced particularly concerning the escalating tension.
Low RCP prices will benefit particularly the AfH and private label segments