The affected paper and paper converting products, regardless of their origins, will be enjoying provisional import tariff rates at 0-5% – lower than the standard most-favored-nation (MFN) import duties of 5-6% – in China for the calendar year of 2023.

Among them are medium, recycled linerboard, virgin and recycled boxboard, and both coated and uncoated fine paper (UFP). China has decided to waive the standard MFN tariffs of 5-6% on imports of these grades until the end of this year.

China’s Ministry of Finance said last week that the tariff cuts would increase the supply of resources and enhance the resilience of its industrial chains and supply chains.

In recent years China has implemented temporarily reduced import duties on various items, usually selected either to make up for relative domestic shortages, or to facilitate development in certain industries. The provisional discounted rates may remain indefinitely as the country endeavors to spur domestic demand as well as to demonstrate its commitment to opening-up.

The news about the latest tariff cuts has immediately rattled China’s paper industry because the Chinese government has never granted zero import duties on so many major paper and board (P&B) grades.

Recycled containerboard blow: The most affected grades are expected to be medium and recycled linerboard.

China’s imports of these two grades ballooned from 2017, when the country started to move to a ban on recovered paper (RCP) intake, leaving domestic recycled board producers struggling with shortages of raw materials.

The annual import volume of medium and recycled linerboard reached its peak at 5.85 million tonnes in 2020 before it declined 9.4% to 5.30 million tonnes in 2021, according to Chinese Customs data. The decline in import volume was attributed to hefty recycled fiber costs abroad and high ocean freight rates which made imported products less price competitive.

The situation continued into 2022 due to China’s economic slump further weakening buyers’ appetite for foreign packaging materials. Imports of medium and recycled linerboard through November totalled 4.31 million tonnes, down by 11.2% from the same period in 2021.

Despite the slowdown, the two major grades still make up around half of China’s total P&B imports.

Apart from the significant volume, the relatively low value for medium and recycled linerboard products means that the drops in tariffs from 5-6% to zero would make a huge difference to import costs.

Previously only imports from Laos or Cambodia enjoyed duty-free entry to China, with Sun Paper’s 1 million tonne per year recycled containerboard mill in Savannakhet, Laos the largest beneficiary.

Now that medium and recycled linerboard from all countries have been granted zero tariffs, Chinese buyers have revived their interests in sourcing board from abroad, especially from Southeast Asian board suppliers, who had cut prices for their products repeatedly over the past few months thanks to easing shipping costs and cheaper recycled fiber.

China’s abolishment of its zero-COVID policy in early December has also bolstered Chinese board importers’ confidence. They are expecting a recovery in packaging demand in early 2023 after the country goes through the wave of infections.

Contacts from some recycled containerboard manufacturers in Vietnam and Malaysia told Fastmarkets RISI that they have been pushing for hikes of as much as $15 per tonne for new export orders to China since early December amid growing demand from the country.

The hike initially met strong resistance but has been partly accepted over the past week because the tariff cuts will be more than sufficient to offset the price increase, a source at a Vietnamese board mill said.

Meanwhile, the zero-import duty policy is seen as a heavy blow to domestic recycled containerboard mills in China after they went through the difficult year of 2022 which featured prolonged, market-related downtime and consecutive drops in their selling prices.

While a handful of leading Chinese companies with board production bases abroad may benefit from the duty cuts by importing their overseas output to China, the majority of the domestic mills will have to face fiercer price competition with overseas suppliers.

Pressure on boxboard: Import duties on most virgin and recycled boxboard grades have also been reduced from 5% to zero.

The move is unlikely to lead to an influx of virgin fiber-based boxboard grades, particularly coated ivory board, because prices for such products in China are relatively low, as a result of oversupply, compared to other overseas markets.

But recycled fiber-based coated duplex board from other Asian countries, especially Malaysia where XSD International Paper started up a 350,000 tpy BM in Kedah nearly a year ago, may gain easier access to the Chinese market after the tariff deduction.

Uncertainty over UFP: To most industry players’ surprise, coated fine paper (CFP) and UFP also enjoy the provisional zero import tariffs, despite abundant domestic production of both grades in an oversupplied Chinese market.

While Chinese fine paper suppliers are less worried about imports of CFP due to limited supply of the grade in other countries, they have shown concern over a possible rebound of UFP imports, in particular those from Indonesia.

China’s UFP imports skyrocketed from 484,000 tonnes in 2019 to nearly 1 million tonnes in 2020 and 1.14 million tonnes in 2021, according to Chinese Customs data. The additional tonnage came from Indonesia, where UFP suppliers had to divert more of their output to China as the COVID-19 pandemic hampered their sales to other markets.

The tide turned in 2022 when Indonesian suppliers pivoted toward non-Chinese markets where demand and pricing for UFP strengthened. In the first 11 months of 2022, China’s UFP imports totalled 336,000 tonnes, down by 68.5% from the same period in 2021.

But the upturn in other parts of the world, especially in North America and Europe, has eased off since late last year.

“Indonesian UFP may stage a comeback in China if it cannot find adequate orders elsewhere, and now the zero tariff will allow it to be potentially more price competitive on the Chinese market,” a Chinese UFP producer source said.

KLB, newsprint unaffected: Virgin fiber-based unbleached kraftliner (KLB), bleached and unbleached kraft paper, and newsprint are not affected by the new tariff cuts.

China is heavily reliant on imports of virgin KLB and kraft paper because domestic production is limited by a lack of softwood fiber, but the two categories will continue to be subject to standard MFN tariffs of either 2% or 5%.

Since 2017, China has become a major importer of newsprint as the very few remaining newsprint producers in the country have had difficulties in sourcing imported old newspaper (ONP) as raw material amid stringent regulations of RCP imports and much of the domestic capacity has been switched to production of other P&B grades.

Despite the growing share of imports on the Chinese newsprint market, the country has kept the tariff on the grade unchanged at 5%.

From: Fastmarkets Risi