Paper360 - July/August 2017 - 57

Containerboard
to the US?

Fig. 7

Fig. 6

Fig. 5

leads to other higher costs-additive starch, strength aids, chemical-to
compensate for the lower quality of the recycled material.
There is less of a cost difference between mills in China than those in
the US (Fig. 5). In the US, the average cost difference between any mill
and that above or below it on the cost curve is US$1.70 per ton. In China,
there is only a US$0.60 difference. As a result, there is more of a margin
difference to be made in the US than in China by rebuilding machines
to reduce costs. And US machines are much older than those in China-
older technology, plus a steeper cost curve, leads to more rebuilds (Fig. 6).
The two countries also experience wide differences in labor costs.
In China, there are on average more than 400 employees at a given site,
nearly double the US average. As a result, productivity per person in
China is only 550 tons, less than a third of the 1,748 tons found in the US.
Compensating for this in cost terms is the fact that, on average, Chinese
wages are around US $10 per hour, compared to US $40 per hour in the
US. This clearly offers an incentive to run leaner in the US.
Despite the overall flat production cost curve in China, there is a wide
gap in fixed costs between the highest and lowest cost producers. Building
wide-scale machines could therefore still be attractive and, indeed, may
offer a better return on investment than a greenfield mill in the US.
As a result, we might still expect to see new mills coming on stream in
China in the near future. FisherSolve data show that, despite low operating
rates, China has announced plans for 11 million tons of new capacity in
the next two years (Fig. 7). Some of these projects may not come to fruition, but there is still a drive to add capacity.
We should remember too that, though China is going through a period
of slower growth, this is a cyclical industry. It is important to note that the
new machines under construction in China today are 20-40 percent wider
than those already in operation, which should give them a significant
fixed cost advantage.
Chinese wage growth has been phenomenal, tripling over the past few
years (Fig. 8). Projecting wage growth into the future, it is clear that wage
inflation will have a much greater impact on lower productivity machines.
As wages increase in China, there will be greater pressure on producers
with smaller machines.
The three largest producers are already fairly low cost in China. It is
unlikely that they will see any advantage in buying smaller producers with
higher cost structures, so M&A is not likely to be a big feature in the market,
but new low-cost machines in the first or second quartile will tend to push
out higher-cost operators. To the extent that the new machines are added
by the larger producers, the industry will tend toward consolidation.

Fig. 8

Matt Elhardt is VP business development, Fisher International, a consulting
firm that supports the global pulp and paper industry with business intelligence and data-driven strategy expertise. The information and analyses
for this article are drawn from FisherSolve, the paper industry's premier
market intelligence database and analytics resource. To learn more, visit
www.fisheri.com. Matt Elhardt can be reached at melhardt@fisheri.com
Paper360º JULY/AUGUST 2017

57


http://www.fisheri.com

Table of Contents for the Digital Edition of Paper360 - July/August 2017

Setpoint
Over the Wire
Euroports Extends Its Reach
Ensuring a Tight Load
Riding the Rails
Trailer Flooring Makes a Difference in Paper Roll Transport
Top 50 Power List
CEPI’s New Director General: ‘A Remarkable Industry'
Värö’s Expansion for the Future
Model Behavior: Understanding Virtual Process Integration
Mondi Štĕtí Chooses Direct Drive Technology
The Knowledge Trail
TAPPI Journal Summaries
How Does China’s Containerboard Market Compare to the US?
Industry Trends in Graphic Paper
Will China Ban Mixed Paper Imports?
TAPPI News
ASPI News
Index of Advertisers
Paper360 - July/August 2017 - intro
Paper360 - July/August 2017 - bellyband1
Paper360 - July/August 2017 - bellyband2
Paper360 - July/August 2017 - cover1
Paper360 - July/August 2017 - cover2
Paper360 - July/August 2017 - 3
Paper360 - July/August 2017 - 4
Paper360 - July/August 2017 - 5
Paper360 - July/August 2017 - Setpoint
Paper360 - July/August 2017 - 7
Paper360 - July/August 2017 - Over the Wire
Paper360 - July/August 2017 - 9
Paper360 - July/August 2017 - 10
Paper360 - July/August 2017 - 11
Paper360 - July/August 2017 - 12
Paper360 - July/August 2017 - 13
Paper360 - July/August 2017 - Euroports Extends Its Reach
Paper360 - July/August 2017 - 15
Paper360 - July/August 2017 - 16
Paper360 - July/August 2017 - 17
Paper360 - July/August 2017 - 18
Paper360 - July/August 2017 - 19
Paper360 - July/August 2017 - Ensuring a Tight Load
Paper360 - July/August 2017 - 21
Paper360 - July/August 2017 - Riding the Rails
Paper360 - July/August 2017 - 23
Paper360 - July/August 2017 - Trailer Flooring Makes a Difference in Paper Roll Transport
Paper360 - July/August 2017 - 25
Paper360 - July/August 2017 - 26
Paper360 - July/August 2017 - Top 50 Power List
Paper360 - July/August 2017 - 28
Paper360 - July/August 2017 - 29
Paper360 - July/August 2017 - 30
Paper360 - July/August 2017 - 31
Paper360 - July/August 2017 - 32
Paper360 - July/August 2017 - 33
Paper360 - July/August 2017 - 34
Paper360 - July/August 2017 - 35
Paper360 - July/August 2017 - 36
Paper360 - July/August 2017 - 37
Paper360 - July/August 2017 - CEPI’s New Director General: ‘A Remarkable Industry'
Paper360 - July/August 2017 - 39
Paper360 - July/August 2017 - 40
Paper360 - July/August 2017 - 41
Paper360 - July/August 2017 - Värö’s Expansion for the Future
Paper360 - July/August 2017 - 43
Paper360 - July/August 2017 - Model Behavior: Understanding Virtual Process Integration
Paper360 - July/August 2017 - 45
Paper360 - July/August 2017 - 46
Paper360 - July/August 2017 - 47
Paper360 - July/August 2017 - Mondi Štĕtí Chooses Direct Drive Technology
Paper360 - July/August 2017 - 49
Paper360 - July/August 2017 - The Knowledge Trail
Paper360 - July/August 2017 - 51
Paper360 - July/August 2017 - TAPPI Journal Summaries
Paper360 - July/August 2017 - 53
Paper360 - July/August 2017 - 54
Paper360 - July/August 2017 - 55
Paper360 - July/August 2017 - How Does China’s Containerboard Market Compare to the US?
Paper360 - July/August 2017 - 57
Paper360 - July/August 2017 - Industry Trends in Graphic Paper
Paper360 - July/August 2017 - 59
Paper360 - July/August 2017 - Will China Ban Mixed Paper Imports?
Paper360 - July/August 2017 - 61
Paper360 - July/August 2017 - 62
Paper360 - July/August 2017 - 63
Paper360 - July/August 2017 - 64
Paper360 - July/August 2017 - 65
Paper360 - July/August 2017 - 66
Paper360 - July/August 2017 - TAPPI News
Paper360 - July/August 2017 - ASPI News
Paper360 - July/August 2017 - 69
Paper360 - July/August 2017 - Index of Advertisers
Paper360 - July/August 2017 - cover3
Paper360 - July/August 2017 - cover4
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