Indian kraft industry braces up for Black Swan moment

Manish Patel of SIPM presented a grim scenario about the upheaval in the global fibre, containerboard and corrugated box markets during the ICCMA Congress on 4 October. He showed how China’s push to clean up its environment will impact India

12 Oct 2018 | By Ramu Ramanathan

The ICCMA committee discussed the supply gap of 12 million MT per year in containerboard in China

Manish Patel of SIPM during his presentation at the ICCMA (Indian Corrugated Case Manufacturers Association) Congress said it was a Black Swan moment for the containerboard industry in India. The reason: it has had a major effect and the status quo has been turned inside-out and upside down. The raison d aitre: China's aggressive push to clean up actions and retaliatory tariffs.

Top corrugation box leaders including Kirit Modi, president of ICCMA stated that the current market doldrums are unique. This time they are caused by an artificial imbalance in supply and demand caused by the decision of the Chinese government to establish specifications for imported recyclables. These new specifications, with a limit of 0.5% contamination, has been challenging for American, Canadian and European mixed paper and mixed plastics recyclers. But worryingly, it has cast a pallor of gloom and doom on the Indian industry.

So, what happened? 
On 31 December 2017, China put a halt to a lot of the plastic waste - like single-use soda bottles, food wrappers, and plastic bags — which used to be exported to its shores for disposal.
Before the ruling, China was the world’s biggest scrap importer. On the first day of 2018, it stopped accepting recycled plastic and unsorted scrap paper from abroad, and severely curbed imports of cardboard. The amount of recovered material that America, the world’s biggest exporter of scrap, sent to China was 3 metric tonnes (MT) less than in the first half of 2018 than a year earlier, a drop of 38%.

In real terms, this calculates into imports of USD 24bn-worth of rubbish. Plus mixed paper and polymers now languishing at recycling plants across the Western world. By 2030, the ban might leave 111 million MT of plastic trash with nowhere to go.
That's not all. Cause, the plot thickens.

Patel pointed out that China's production for paper and paperboard grew to 120 million MT in 2015 from 10 million metric tonnes in 1990. India's production is 13.5 million tonnes. Patel said, there has been a 30% shortage in RCP (recycled and waste paper) for containerboard due to restrictions. This has resulted in two things. One, spurt in domestic OCC (old corrugated cardboard) prices and a 12 million MT deficit for board in China.

While interacting with delegates from China at the conference and the adjacent exhibition, they spoke to WhatPackaging? magazine on strict instructions of anonymity. A representative from Shanghai, said, "The Chinese government is very strict about its policy of 0.5% and reduced contamination." So what happens to the 5,000 recycling companies with 10 million people working in the Chinese industry, the general feedback was, "No comments since the industry is confusing and complex and messy in China. There is no information and lack of proper structure - and the full scope and consequence of China's new multi-faceted scrap import policy still aren't fully understood."

One thing is crystal clear, the import permits in China is expected to tighten. One Chinese manufacturer said, "Corrugated boxes constitute more than half of the recyclable paper China imports because of their long, strong fibres. They are a cleaner grade than mixed paper, especially corrugated boxes from commercial accounts." There is uncertainty about inspection procedures which is causing problems in mainland China. And so, paper recyclers are reluctant to ship bales of OCC until they know that inspections will be consistent and predictable.

The Indian markets will face turbulence for the next 12 months. As Patel pointed out, a unique characteristic of China's RCP cycle is it is strongly influenced by its exports. He said, 20% of Chinese GDP is boosted by it exports and "as China's exports of goods is a packaging-backed initiative there is a strong demand for containerboard.

Patel said, "the Chinese market for lower grades of containerboard (also known as kraft paper in India) is extremely attractive in terms of pricing for Indian, Middle East and South East Asia paper manufacturers. Exports to China and other destinations in the Middle East, South Asia and Africa by Indian and other regional mills is not only sucking out the excess capacity in domestic markets but creating a shortage. This is driving up costs for all regional corrugated box manufacturers including those in India.

He explained how paper mills in South East Asia, India and the Middle East are trying to fill this deficit gap. He said, "The Chinese shortage of about 12-13 million MT/year) far outweighs excess international capacities. And so, how will large Chinese producers respond to source fibre for their mills in China? Will US recyclers be able to clean up their packaging waste? Will Indian paper mills shift their attention (and profit margins) to China instead of the local market?

The Q&A after Patel's presentations made it clear, that predictions are futile. But this looks like the worst crisis in the past decade.
With demand expected to be boosted to fulfil the needs of e-commerce blockbuster online shopping days and the traditional Diwali holiday season, the next few months look tough. Has India learnt anything from this latest episode, or as always, we will despair, and hold our breath till the next one happens? Or will we try to find solutions?

Know your scrap and rubbish

  • China’s USD 24bn-worth of recycled-materials imports are a quarter of the total traded globally, and up from UDS12bn a decade earlier
  • Till 31 December 2017, more than half of the world’s used plastic, paper and cardboard—around 32-million tonnes was despatched to China
  • China recycled 85% of the 7-million tonnes of plastic it imported in 2016. The remaining 15% went to landfills or was incinerated
  • Scrapo is an online marketplace that matches buyers and sellers of second-hand polymers in different countries. Since its inauguration in November, suppliers have posted offers to sell 1.5-million tonnes of recovered plastic on Scrapo
  • MerQbiz is a platform to streamline the USD30bn annual reused-paper market; and Scrap Monster is a platform for trading recovered metal, has 50,000 registered users