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European paper exports hit hardest by China's quality demands

Volumes and prices of recovered paper imported into China have decreased in early 2013, but the country’s Green Fence Operation is only one of the factors underpinning the decline, according to industry experts.

China’s import of recovered paper fell more than 4% year-over-year in the first four months of 2013, according to Hannah Zhao, senior economist at RISI, a US-based information provider for the global forest products industry.

Zhao told MRW that import prices for recovered paper have also declined, falling by around 20% from mid-March to May. She said these are traditionally strong months for trading as business activities resume after the break for Chinese New Year in February. But the quality thresholds of Green Fence, which were effectively enforced from March, cannot be singled out as the main reason for the price decline.

“I would say about half the price drop is attributable to the Green Fence and the other half comes from weak fundamental demand,” she said.

According to Ranjit Baxi, president of the paper division of the Bureau International Recycling and chairman and chief executive of J & H Sales International, the Green Fence is only the most visible sign of China’s increased focus on quality in the import of waste material. Chinese authorities started imposing tighter criteria on the import of recovered paper in 2008, he said.

Focus on Europe

Zhao and Baxi say Europe has been more affected than other major recovered paper exporters – the US and Japan – by the Chinese crackdown.

“Some European cargoes containing illegal waste material were found and stopped by Chinese authorities last year,” said Zhao. “These incidents constituted a sort of trigger for the launch of the Green Fence Operation, so import from Europe has been more in focus.”

Figures from Chinese authorities collected by Baxi indicate that the total volumes of recovered paper imported into China in the first quarter of 2013 were slightly lower year-on-year, but show how relatively less European recovered paper has passed Chinese customs in comparison to other exporters. Import from Europe decreased by 11.5%, while imports from the US or Japan increased by 5.8% and 7.7%, respectively.

However, Baxi pointed out that the decrease in European volumes follows a five-year trend of decline, and argued that this was driven mainly by importers’ preferences.

“Chinese mills have shifted their focus from Europe to other exporters because they want material of higher quality.

“The amount of paper imported by China has increased from 24m tonnes a year in 2008 to 30m tonnes in 2012 but, while imports from Europe have remained stable at around 8m tonnes a year, import volumes from the US and Japan have continued growing.”

Recovered paper imports from the UK constituted 37% of Europe’s total in the first quarter of 2013, according to Baxi’s data.

Demand for quality not limited to China

Baxi argued that the main effect of the Green Fence is making European exporters more conscious of quality standards.

“The European paper exporting industry has lost its focus on quality,” he said. “The operation is certainly succeeding in raising awareness on quality standards,” he said.

Zhao forecast that the impact of the Green Fence will fade as recovered paper exporters and Chinese paper mills learn to work together to improve the quality of material.

“Good quality materials will still find their way to China and may get even higher prices than they used to,” she said.

However, a European purchasing agent for a Chinese paper manufacturing company told MRW that European exporters may simply be targeting other markets, such as Thailand and Indonesia, and this would explain the drop in import figures.

Baxi said that he was not aware of such a trend, but added that this could only be sustained for a short time.

“The demand for higher quality is getting stronger and stronger thorough Asia,” he said.

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