Sino-U.S. trade tensions are casting a shadow over the development prospects of China's paper industry, prompting paper giants to shift strategies

Sino-U.S. trade tensions are casting a shadow over the development prospects of China's paper industry, prompting paper giants to shift strategies

Lee & Man Paper plans to invest resources in the pulp business, while Nine Dragons will push forward its raw material expansion plans.
The Pulp and Paper Times

In 2024, the macro-economy continued to face downward pressure with consumer demand remaining weak. The paper manufacturing industry in China, however, while absorbing excessive capacity and pulp price fluctuations, demonstrated resilience. Benefitting from a series of government stimulation policies such as cutting reserve requirement ratio, lowering interest rate, and boosting consumption, downstream demand gradually warmed up, resulting in a general recovery of paper manufacturing companies during the year.

China’s economy, driven by the stabilizing growth policies and further structural reforms, showed a mild turnaround with moderate recovery in domestic consumption. In addition, benefited from the export growth of end customers on top of the peak season factor, the demand for packaging paper improved moderately, driving the packaging paper industry sentiment from the trough to gradual recovery. Despite this, the overall consumer confidence in the market has yet to be fully restored, and the effective consumer demand remained insufficient.

Looking back at 2024, with new pulp production capacity being released in mainland China, pulp price remained unstable generally. Regarding the paper manufacturing industry, although players speeded up destocking during the year, market demand continued to be weak. In addition, as the U.S. presidential election during the year brought uncertainties, the industry’s overall performance was affected.

FUTURE OUTLOOK

Looking ahead to the second half of the financial year, Nine Dragons Paper Group will encounter both opportunities and challenges. The Chinese government’s special campaign to boost consumption will continue to unleash consumption potential, which will in turn support the demand in the packaging paper industry. Nonetheless, the continued release of new capacity, the gradual recovery of the economy and consumption, and increasingly tense international relations will all affect market demand and supply. However, we strongly believe that the environmental trend of “replacing plastic with paper” and the demand stimulus of “replacing the old with the new” will present opportunities to the paper manufacturing industry. Meanwhile, the Group is determined to deepen its strategy of pulp and paper integration, which will further enhance its cost control capabilities and brand competitiveness, consolidating the foundation of profitability and solidifying the leading position of the Group in the industry.

Looking ahead at 2025, while ongoing Sino-U.S. trade tension is casting a shadow over the development prospects of enterprises, new opportunities have emerged at the PRC government policy – “export goods for domestic sales”. China has clearly proposed earlier to vigorously boost consumption and enhance investment efficiency for realizing the strategic goal of expanding overall domestic demand. Such stimulus policies are expected to help promote consumer spending, continuously improve consumption sentiment, in turn drive increase in demand for paper products. Moreover, as the paper manufacturing industry is close to the end of the capacity release cycle, supply is expected to gradually stabilize, meaning the industry should see the supply-demand balance restore and moderate growth in its performance.

According to Lee & Man Paper Group, it will seize the opportunities brought about by favorable policies to actively promote development of its domestic sales business. It will, via pursuing technological upgrades, push to improve production efficiency of its paper-making equipment, aiming to further reduce costs and widen profit margins. It will also strengthen product research and development to match the diverse needs of customers, thereby bolster the market competitiveness of its products.

As per the interim review of Lee & Man Paper for the year ended on 31st December 2024, “The pulp business is an important part of the Group’s vertically integrated production setup. We will continue to invest resources in technological upgrades and optimization of our pulp production equipment, aiming to increase pulp sales as well as provide a stable supply of raw materials to our tissue paper business, thereby enhance overall production efficiency and maximize profits.

“Looking ahead, the Group will insist on implementing a prudent business strategy, actively identify growth opportunities in the paper manufacturing industry, continuously expand and refine the layout of each business segment in its integrated industrial chain. It will also strengthen its profit base, enhance operational efficiency, so as to maintain its competitiveness in the market,” Lee & Man Paper said.
As per the interim review of Nine Dragon Paper for the six months ended December 2024, The Group will push forward the raw material expansion plans in an orderly and steady manner, and strive to strike a proper balance between production and sales. It will also ramp up technological innovation and resource integration, and further promote the standardization and uniformity of pulp and paper production quality. The Group will continue to achieve sustainable supply of exemplary quality paper that embodies the characteristics of Nine Dragons Paper, while raising the proportion of high value-added products. At the same time, the Group will utilize big data to promote the quality and efficiency enhancement measures by pursuing prudent financial strategies. Furthermore, it will strengthen green and compliant operations to achieve high-quality and sustainable development.

Revenue:

Nine Dragons Paper Group achieved a revenue of approximately RMB33,464.6 million for the Period, representing an increase of approximately 9.3% as compared with the corresponding period last year. The major contributor of the Group’s revenue was still its packaging paper business, including linerboard, high performance corrugating medium, coated duplex board and bleached folding boxboard, which accounted for approximately 90.9% of the revenue, with the remaining revenue of approximately 9.1% generated from its printing and writing paper, high value specialty paper and pulp products.

For 2024, Lee & Man Paper Group recorded total revenue of HK$26.0 billion, representing an increase of 4.2% from that of the previous year, while the profit for the year increased by 17.6% to HK$1.4 billion as compared with that for the previous year. The earnings per share for the year were HK30.56 cents (2023: HK24.39 cents).

Facing changes in market supply and demand, Lee & Man Paper Group insisted on actively promoting integration of its industrial chain to ensure raw materials supply and control costs, and ultimately improve gross profit. By flexibly adjusting the production and sales between pulp and paper manufacturing businesses, we were able to enhance operational efficiency and effectively drive steady growth of profitability overall.

Lee & Man Paper’s pulp production lines in Chongqing, Jiangxi, and Guangxi, in operation since 2023, operated smoothly during the year. The vertically integrated business model has enabled the Group to reap economies of scale, further lowering costs and in turn boosted profitability and profit margins during the year. As for the overseas production bases in Vietnam and Malaysia, they continued to demonstrate cost advantages and recorded considerable profits. The overall gross profit margin of the Group for the year was 12.0%, up by two percentage points year-on-year.

Nine Dragons Paper continued to optimize its raw material expansion plans, and gradually utilized big data to facilitate scientific and innovative management and comprehensively launch the quality and efficiency enhancement measures, thereby effectively enhancing its cost control capabilities and operating efficiency. At the same time, the Group closely tracked the market dynamics of raw materials and finished product of paper, and timely adjusted its production and sales strategies to maximize profitability. The Group’s fundamentals continued to improve and profitability substantially climbed. The gross profit for the Period increased by 18.1% year-on-year, while net profit after tax also surged by 124.9% year-on-year. In addition, we further improved the risk management system and kept working capital, cash flow and exchange rate fluctuation risks to minimum levels, solidly securing the robust development of the Group.

The majority of the Nine Dragons Paper’s revenue continued to be realised from the China market, in particular from the linerboard, high performance corrugating medium, coated duplex board and bleached folding boxboard sectors. For the Period, revenue related to China consumption represented 89.4% of the Group’s total revenue, while the remaining revenue of 10.6% represented sales recorded in other countries outside China.
 

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