The European natural gas crisis is undoubtedly a huge negative for energy consuming industries. The local high-tech industry, including automobile manufacturing, and the basic industry, including iron and steel smelting, are all at a loss, and the paper industry is one of them.

On September 6 local time, the European Paper Industry Federation (CEPI) once again sent a joint letter with other industry associations, such as the European Fertilizer Association, the Glass Association, the Cement Association, the Mining Association, the Chemical Industry Council, the Iron and Steel Association, and a total of 12 industry associations to the President of the European Commission Von Delain.

In the letter, these industry associations pointed out that a large number of European factories had closed or reduced production in the previous week, and more factories would shut down in the coming weeks, which would lead Europe to rely more on the third-party market to supply important materials and increase carbon emissions.

These associations called on EU officials to take prompt measures to decouple the electricity price from the natural gas price. The current natural gas subsidy policy also needs to continue to be adjusted.

However, the problem limiting European paper industry and even all industries is not how high the price is, but how much natural gas or electricity is. Until Von Delain answers this question, the joint letter still cannot save the production capacity of important industries such as European paper industry.

Large scale production reduction

According to the German Paper Industry Association (Die Papierindustry) on Tuesday, under the impact of the natural gas crisis, the entire paper industry is facing huge cost pressure. Toilet paper manufacturers are in a particularly difficult situation, and the drying link in their production process is difficult to carry out.

Germany is the largest paper producer in Europe, with an annual output of 23.1 million tons last year, accounting for a quarter of Europe’s total. However, Germany is heavily dependent on Russian natural gas, which has become a disaster area of the recent natural gas crisis.

According to people in the industry, in August, every packaging factory in Germany announced that it would reduce the purchase of recycled paper by 20000 to 50000 tons, nearly 15% less than the normal situation. In addition, some paper mills have advanced or extended the original inspection and shutdown period.

The reduction of production is not only in Germany, but also in Europe’s leading corrugated packaging giant Smurfit Kappa, which announced a reduction of production of about 30000 to 50000 tons in August. In recent years, more than a dozen paper manufacturers in Europe have announced their withdrawal or transformation, and 6 million tons of paper production capacity has disappeared.

The good news is that the proportion of European paper exports in global consumption is not high, and European paper is basically produced and sold by itself, so the reduction of local production capacity will not hurt the consumption in other regions. Even the decline of European paper industry may be a rare opportunity for other countries.

Who can benefit?

The European paper industry was sad, but it was not the first day.

As early as April this year, the European Paper Industry Federation (CEPI) had solemnly announced that some paper mills in Europe would have to suspend production due to extreme energy prices.

CEPI members include 895 pulp and paper/board mills in 18 EU countries. It will have a pulp production capacity of 43.41 million tons in 2021, and will produce 37.3 million tons of pulp in the year; The paper/paperboard production capacity exceeded 100 million tons, and the annual production reached 90.58 million tons. Pulp and paper products accounted for 20.2% and 19.2% of the global output respectively.

According to the data in 2021, CEPI member countries have basically realized their own production and sales of paper industry. The import of local paper and paperboard from outside the CEPI Alliance accounted for only 6.4% of the consumption, and the import of recycled paper accounted for only 4.4% of the consumption. The most upstream raw material, wood, CEPI has also achieved most of the local production, accounting for 85.7%.

The only question mark that needs to be made is the supply and demand situation of pulp, the intermediate product in the industrial chain. In 2021, the proportion of CEPI’s commodity pulp imports will reach 47.8%, accounting for 21.5% of the total pulp consumption. On the global market, the largest producer of pulp is North America, accounting for 32.3% of the world’s total, followed by Asia, accounting for 23.2%.

According to market research data, mainstream pulp, namely wood pulp, is very dependent on imports in China. In 2020, the import of wood pulp will account for 63.2% of the total consumption.

Therefore, due to the shortage of pulp in Europe due to production stoppage in the near future, Chinese enterprises may not get a share of this cup because they do not have excess capacity, and North America will be the biggest winner. However, the demand for pulp will also decline after the European paper mills’ “flameout” due to energy problems. The finished paper is what consumers really need.

China’s paper export rebounded

In the global market for paper and paperboard, Asia has always been a major producer and marketer, accounting for 47.3% of output and 49.2% of consumption. China is also the largest country in the global paper industry.

However, according to Bohai Securities, under the dual pressure of rising raw material prices and weak demand, the low ebb period of domestic paper industry will continue.

There is a saying that there are flowers in the wall and fragrance outside the wall. According to media reports, due to the impact of the closure of European cultural paper factories for production change, the UPM strike and the conflict between Russia and Ukraine, Europe is in a situation of insufficient paper supply. Recently, foreign inquiries for Chinese enterprises have increased sharply, but now China’s paper enterprises with export product standard certification have saturated export orders. If the European paper industry continues to stop production on a large scale in the future, China’s paper export market is expected to become more popular.

According to the statistics of industry websites, from January to July 2022, the cumulative export volume of China’s machine-made paper and paperboard was 3.85 million tons, an increase of 85.13% compared with 2.0796 million tons in the same period last year. Chenming Paper, a leading enterprise in the industry, disclosed in its semi annual report that it achieved a revenue of 16.676 billion yuan in the first half of this year, of which the overseas sales revenue increased by more than 120% year on year, which is particularly impressive.

However, China’s paper output mainly meets domestic demand, and the overall export volume is not large. In 2021, China’s paper and paperboard export volume will be 5.47 million tons, a decrease of 400000 tons compared with 2020, accounting for 4.5% of China’s total paper output in that year. Among them, white paperboard, specialty paper, coated printing paper and household paper rank the top four in export volume.