[Gold Sheet Crisis] Paper Mills Smile... Small Box Companies "Have Nothing Left"

Raw Material Suppliers Achieve Record 1Q Performance Amid Ongoing Supply Instability Since Last Year
Domestic Parcel Volume Rises and Chinese Demand Surges... Core Material Prices Up 40% in Six Months
Box Manufacturers Hit Hard... Only Partial Price Increases Reflected Despite Raw Material Cost Hikes
Raw Material Prices to Rise 20% in August... Second Crisis Expected Ahead of Chuseok

A factory worker is bundling corrugated cardboard boxes with a banding machine. The photo is unrelated to the specific expressions in the article.
Photo by Asia Economy DB

[Asia Economy Reporter Lee Junhyung] #Company A, a corrugated cardboard manufacturer in Dalseong-gun, Daegu, expanded its production facilities in February to increase its production capacity from 450,000 tons to 520,000 tons. This was to respond to the surge in domestic and international orders since last year. Company A plans to expand its production facilities once more this summer to secure a total production capacity of 600,000 tons. A representative from Company A explained, "Both domestic and export volumes have increased, and we are receiving far more orders than the demand predicted two years ago," adding, "The industry boom is expected to continue at least until the end of next year."

#Company D, a box manufacturer located in Cheonan, Chungnam, has not been able to accept new customers since the second half of last year. Due to the inability to receive additional supply of corrugated cardboard base paper (fluting medium) from paper mills, it is struggling to meet the demand of existing customers. A representative from Company D said, "There were quite a few companies willing to pay a premium to supply boxes, but ultimately we could not accept orders," and added, "If the rainy season extends this summer, a price increase for corrugated cardboard is inevitable, so the burden of raw material costs is also significant."

The 'corrugated cardboard crisis' has brought mixed fortunes to the industry. Corrugated cardboard base paper manufacturers are enjoying unprecedented prosperity as domestic parcel volumes and exports to China surge. On the other hand, box manufacturers who receive corrugated cardboard from paper mills are distressed by the growing business uncertainty. The cause is the price increase and unstable supply of corrugated cardboard that has continued since the second half of last year.

Corrugated Cardboard Base Paper Companies... Record-Breaking Performance

Major domestic corrugated cardboard manufacturers such as Taelim Paper, Asia Paper, and Sambo Paper (Daerim Paper) posted record-breaking performances in the first quarter of this year. Asia Paper's first-quarter sales (218.6 billion KRW) and operating profit (36.9 billion KRW) increased by 22.6% and 106.4% respectively compared to the previous year. During the same period, Daerim Paper's sales (40.6 billion KRW) and operating profit (9 billion KRW) rose by 43% and 182.2% respectively year-on-year. A representative from the unlisted Taelim Paper stated, "Like other companies, we achieved record-high performance."

This is due to the prolonged COVID-19 pandemic causing a surge in domestic parcel volumes and a significant increase in demand from China. According to the Korea Integrated Logistics Association's '2020 Domestic Parcel Market Performance,' the domestic parcel volume last year was 3.37 billion items, about 21% higher than the previous year's 2.79 billion items. The Korea International Trade Association reported that exports of corrugated cardboard to China reached 190.6 billion KRW last year, a 108% increase compared to the previous year, and a 664% surge compared to 2018 (24.9 billion KRW).

As the corrugated cardboard base paper market enters a super boom, newsprint companies such as Jeonju Paper and Paper Korea have refurbished their paper machines (paper machines that produce paper) and are increasingly entering corrugated cardboard production. An industry insider explained, "The increase in China's corrugated cardboard imports is expected to have a significant impact domestically," adding, "Markets like newsprint are limited, so related companies may focus entirely on corrugated cardboard production."

Cheers on One Side, Wails on the Other

However, not the entire industry is benefiting. Small and medium-sized companies that buy corrugated cardboard base paper to make boxes say, "The supply of corrugated cardboard is insufficient, and prices are soaring." They complain that the market has become supplier-dominant, where they cannot produce boxes without securing corrugated cardboard, leading to reduced profitability. Corrugated cardboard prices have already been raised twice since the second half of last year. According to the Corrugated Cardboard Packaging Industry Cooperative, the price of corrugated cardboard base paper rose from 350,000 KRW per ton in November last year to 430,000 KRW, and then to 490,000 KRW last month. The base paper price has jumped about 40% in just half a year. Rumors are widespread in the industry that the price will increase once more by around 20% in August, ahead of Chuseok.

The problem is that box manufacturers have not been able to properly reflect the increase in base paper prices in their delivery prices. While the price of corrugated cardboard base paper rose by 40%, box prices only increased by 15-20%, according to industry sources.

Hwang Cheongseong, chairman of the Korea Box Industry Cooperative, said, "About 1,800 box companies receive corrugated cardboard from five major paper mills, but price increases are unilaterally notified without consultation."

Supply instability remains a negative factor. Although domestic and international demand is surging daily, a fire broke out at Daeyang Paper's Ansan plant in October last year, creating a gap in the supply chain. Daeyang Paper accounted for about 7% of domestic corrugated cardboard production but lost both paper machines in the fire and halted production. Although the crisis has been resolved for now, supply instability is expected to continue long-term. An industry insider explained, "From next month, agricultural and marine product deliveries will increase, and with Chuseok approaching, there is a high possibility of a second crisis."

This content was produced with the assistance of AI translation services.