On the evening of January 30, 2024, Chenming Paper released its 2023 annual performance forecast, and the company's profit in 2023 recorded a loss. Although it is a year-on-year decline, from the overall trend, the profitability of enterprises is gradually recovering.
Weak demand and high cost squeeze the profitability of paper enterprises.
When analyzing the reasons why the performance was not as good as the same period last year, Chenming Paper said: first, due to the lack of domestic demand, the company's main production base Zhanjiang Chenming was affected by the accident of the pulp slag sales unit, the capacity utilization rate was reduced, and the production and sales of machine-made paper decreased year-on-year, which affected the benefit; Second, due to the weak downstream demand and the centralized delivery of new production capacity, the ** of machine-made paper, especially the white cardboard, fell sharply year-on-year; Raw materials such as woodchips, raw coal, and chemicals are still running at a high level, which seriously squeezes the company's profitability and has a great impact on the company's efficiency.
The good news for the industry is that the cost pressure on paper companies is expected to ease as the upstream pulp supply enters the expansion cycle. According to Guolian**, in the next two years, 6.9 million tons of commercial pulp production capacity is expected to be added overseas, and at the same time, there will be more wood pulp production capacity in China, and pulp prices continue to lack fundamental support.
The company further said, "With the implementation of a series of policies to expand domestic demand and promote consumption, downstream demand will gradually pick up, the short-term supply and demand contradiction in the paper industry will be alleviated to a certain extent, and the industry prosperity is expected to be effectively repaired." At the same time, the company will actively improve quality and efficiency by adjusting product structure, expanding exports, improving production efficiency, controlling production costs and disposing of non-main business assets, etc., and the company's profitability will gradually recover."
Looking at the paper industry in the past year, the overall trend performance is differentiated. From the perspective of paper prices, the performance of cultural paper is stable, and the contradiction between supply and demand of white cardboard is prominent. Due to the rigid demand of the party and government, as well as teaching materials and auxiliary materials, the sales volume and the highest level of cultural paper have remained relatively stable. White cardboard fell due to the impact of flat domestic demand and the impact of new production capacity. The agency expects that in the next few years, on the basis of the existing production capacity, there will be more than 2 million tons of additional production capacity, and the contradiction between supply and demand is still severe.
Industry insiders pointed out that the demand for cultural paper and packaging paper is not in the same rhythm, and the rigid demand for cultural paper is strong, showing high stability, but the demand elasticity of white cardboard is greater. The new production capacity does form a certain pressure on the recovery of white cardboard, but corporate earnings have hit a historical low, and it is expected that with the gradual recovery of market demand, the industry is expected to bottom out.
Enterprises have taken multiple measures to achieve initial results in overseas layout.
Around the changes in the external environment, the head papermaking enterprises are also constantly adjusting. The relevant person in charge of Chenming Paper said, "The company is adapting to the market environment by stripping and compressing non-core businesses, eliminating backward production capacity, and opening up overseas markets." In the short term, affected by factors such as the market environment, corporate profitability is restricted, but in the long run, the company's pulp and paper integration layout remains unchanged, and the cost advantage still exists. Driven by relevant policies, we believe that there are still great opportunities for the development of leading enterprises."
According to public information, in the past ten years, Chenming Paper has successively shut down Chibi Chenming, Yanbian Chenming, Qihe Chenming, Fufu Chenming and Hailar Chenming, transformed 3 newsprint production lines, and eliminated 6 waste paper deinking pulp production lines. Haiming Mining, Jinxin ** and other non-main businesses have also completed the divestiture. The scale of the financial leasing business, which has attracted much attention, has been reduced from about 33 billion yuan at the beginning of 2018 to more than 5 billion yuan at the end of June 2023.
In addition, the company actively "goes out" to expand new customer sources. In October 2023, the company signed strategic cooperation agreements with Korea Paper and Selma of Sweden to further expand overseas markets. The reporter noted that the company's sales and proportion in overseas markets have increased in recent years. According to the disclosure, the company's operating income in other countries and regions in 2022 accounted for a quarter of the company's total operating income, and the overseas layout has achieved initial results. Guolian** analysis pointed out that 2024 is still the first big year overseas, the amount of paper used in emerging markets is also gradually increasing, and the production capacity of cultural paper of overseas factories is decreasing year by year, and it is expected that China's cultural paper exports will still maintain a certain growth.
Industrial policy drives the long-term improvement of the industry.
The "paper instead of plastic" and "double carbon" policies have brought new opportunities for the sustainable development of the paper industry.
On the one hand, "paper instead of plastic" has created potential market demand. In July 2021, the "14th Five-Year Plan" for the Development of Circular Economy was issued by many departments, clearly proposing to carry out special actions for the whole chain of plastic pollution control and encourage the reduction of the use of disposable plastic products. Plastic products are mainly used in the field of product packaging, with the implementation of the "plastic restriction order" continues to increase, the market accelerates the search for high-quality materials to replace plastic packaging, paper products have safety and environmental protection characteristics, is one of the best alternative materials for plastics, "paper instead of plastic" trend paper products demand is expected to be further released.
On the other hand, the intensive implementation of the dual carbon policy has provided new development opportunities for leading paper enterprises. In September 2020, China clearly put forward the goals of "carbon peak" and "carbon neutrality" for the first time, and since then, the country has successively launched relevant policies, and "double carbon" has become a long-term national development strategy, which is not only related to environmental and energy issues, but also related to the future development of various industries. Under the constraints of the policies of "carbon peak" and "carbon neutrality", large-scale papermaking enterprises have achieved energy conservation and emission reduction in the production process through the advantages of the industrial chain such as the integration of forestry, pulp and paper, and green and innovation have driven sustainable growth in profitability.