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Chinese paper VAT to put a floor under prices

Thursday, 21 September 2006
By Print21

The VAT is a recent development levied on paper produced for export from pulp imported into China. The imposition means that the low cost suppliers of Chinese paper will be unable to avoid passing on the tax, thereby putting a floor under price increases from European product. Printers have always been able to source alternative supply in the face of rising prices, even if the Chinese paper generally does not match the European quality.

Industry analysts are waiting to see what impact the VAT will have on the price of paper landed here. One has speculated the tax will only apply to foreign owned companies exporting from China, while Chinese-owned exporters will find ways around it.

The imposition comes at a time when leading Australian paper merchants are pushing through a second tranche of increases this year, even though the initial increases in February generally failed to stick. PaperlinX merchants (Daltons and Spicers) increased uncoated papers by four per cent at the beginning of September and will follow up with a similar rise in coated in October. Edwards Dunlop is also lifting its coated and uncoated grades by four percent with copy paper following at three per cent.

According to Martin Fothergill, group general manager Australasia
PaperlinX Merchanting, the price rises “have to stick. We’re facing substantial increased costs in energy and raw materials. Overseas mills are passing on price rises. Paper merchants cannot absorb any further cost increases, we have to pass them on.”

An unexpected side effect of the VAT may be a cut in the price Chinese mills pay for Australian and New Zealand waste paper. At least one exporter has reportedly been told to drop prices because of the VAT. In extreme cases this could result in pressure for printers to pay for the disposal of their waste paper.

Traditionally European mills battle to meet Chinese costs while China struggles to match European quality. However the gap is narrowing and a shortage of coated mechanical paper following a strike at Stora Enso’s Finnish mills last year opened a window for Chinese supplies, especially from the Sheng Dong mill. Local magazine and catalogue printers who trialled the Chinese product were reportedly very surprised at the high quality and the low price. The Chinese importers have retained up to 10,000 tonnes in the market, and look set to increase that in coming years, despite the new VAT.

Industry observers are also expecting increased imports from Korea following that country’s loss of considerable parts of both its Chinese and US markets.

So, although the factors for a price increase are all in place, it’s never a sure bet that it will stick.

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