TOKYO -- Tighter Chinese restrictions on wastepaper imports have put some much-needed wind in the sails of Japanese paper producers.
High prices of the raw material have been hurting the Japanese players' earnings, but as the supply-demand balance has loosened, the market has settled since this summer.
The explosion of e-commerce in China sparked a surge in demand for wastepaper, which is used in containerboard. The Chinese government, however, clamped down on effluent- and smoke-spewing paper mills ahead of the Communist Party congress in October. Companies that fail to meet the government's requirements are obliged to give up their wastepaper import quotas; the government also plans to ban imports of magazine paper by the end of the year.
The result from Japan's perspective: The Kanto Recovered Paper Association, a group of wastepaper wholesalers, has put off exporting to China for two straight months from September.
With more wastepaper circulating in Japan, wholesale prices have come under downward pressure -- at one point dropping to around 20 yen (17 cents) per kilogram, from 25 yen to 26 yen.
In addition to making wastepaper procurement more affordable for Japan's papermakers, the shift in China has buoyed exporters of containerboard.
Export prices of corrugated flutes for China briefly touched a record high of around $550 per ton. Containerboard exports in September hit the highest level for a single month, according to the Japan Paper Association.
"If we have extra production capacity, we want to further increase containerboard exports to China," said Hirofumi Fujimori, director of Nippon Paper Industries.
China's appetite for containerboard seems to only expand. E-commerce giant Alibaba Group Holding's Singles Day shopping bonanza generated a record 168.2 billion yuan ($25.3 billion) in sales, and e-tailers are turning to Japanese containerboard to pack up those shipments.
Still, the more favorable conditions for Japan's papermakers may not last. China is expected to allow a certain amount of wastepaper imports next year, and if Chinese paper producers snap up Japan's supply, the prices could jump again.
Oji Holdings, Japan's largest paper producer, expects high wastepaper prices will still push down the company's profit by 18.4 billion yen for the fiscal year through March.
Overall, Japanese papermakers are suffering from poor earnings, as the shift to digital reduces the use of their products. If costs rise to an intolerable level, it could prompt a reorganization of the industry.