Quarterly Report – April/May 2019

China, the world’s second-largest economy, continued to show signs of economic stagnation at the start of 2019. The US/China trade war further added to the challenges of driving forward the Chinese economy following the imposition of new tariffs of 25% on US$ 250 billion worth of Chinese exports to the USA. Growth forecasts have also been dampened by increased restrictions on financial lending added by controls on non-performing loans within China.

China’s GDP growth in the first quarter of 2019 is projected to have been 6-6.5%, which is below that for the same period in 2018 and the lowest registered in three decades. Economic measures such as reducing taxes on business and increased infrastructure spending have not been of great help although it is anticipated that, by year-end, these stimuli will have started to take effect. The slowdown in the Chinese economy will also have the effect of weakening the global economy - a major threat since the last meltdown of 2008.

Meanwhile, negotiations have reopened between China and the USA with the hope of lifting some of the uncertainties caused by the trade war, and the interim hold on the tariffs was welcome news.

Fibre exporters were looking to post-Chinese New Year developments in the hope that both prices and demand would stabilise. China’s net imports for 2018 were around 17.5 million tonnes, as compared to some 26 million tonnes in 2017. For 2019, imports are projected to total around 12.5 million tonnes.

The UK was the major overseas supplier from Europe on 2 million tonnes, followed by the Netherlands on 750,000 tonnes, Italy on 700,000 tonnes and Spain on 460,000 tonnes. The USA exported around 6.5 million tonnes as compared to around 12 million tonnes in 2017.
By April 19, China had issued import licences in six batches for a total of 7.7 million tonnes.
At the start of the year, prices were around US$ 195-plus per tonne for OCC and US$ 225-plus for ONP, while US export prices for OCC were at US$ 185-plus (subject to additional 25% tariff). China’s domestic OCC was at around US$ 310-plus per tonne and Mixed Papers at some US$ 290-plus.

Markets failed to sustain these price levels and, by the end of the quarter, they had dropped to US$ 155-plus per tonne for OCC and US$ 165-plus for ONP. US OCC prices had slid to US$ 145-plus and were continuing to fall. China’s domestic prices for OCC were at US$ 350-plus per tonne by the end of the quarter.

Shipping lines continued to threaten more freight increases which, given the weak market, was not welcome news as it forced a further decline in ex-works prices for fibre. On average, freight rates have increased by US$ 75 to US$ 100 over the quarter.

Exporters are still looking to diversify their sales by exploring new markets besides the familiar ones of India, Indonesia, Thailand, Vietnam and the Middle East which have continued to increase import volumes for Mixed Paper, OCC and SOP, induced by lower export prices. Also, these markets have seen increasing new paper enquiries from China and so are looking for more fibre to meet this demand.  

With no new direction given on post-2020 import policy, exporters are keen to receive some clear guidance on what the Chinese government intends to enforce in terms of import controls.

Ranjit Baxi - Ranjit Baxi (India)

Ranjit Baxi

J&H Sales International Ltd (GBR)

Quarterly Report – April/May 2019