Global seaborne chip trade was 27.5 million BDMT in 2021, of which 25.1 million was hardwood species and 2.4 million was softwood.
Around 92% of hardwood chips are used to make BHKP and HYP which is used in the manufacture of paper, board, and tissue products. Around 6% goes into DWP, which is used to make viscose staple fibre for textiles, whilst around 2% is consumed by biomass power generators in Japan. Softwood chips are shipped to Japan and China where they are used to make UKP and semi-chemical pulp for packaging board.
Although there are around 5 million ha of plantation areas in China, the majority are owned by individual tree farmers or state owned tree farms. This structure of ownership combined with complex forest policies have prevented pulp and paper companies from developing viable local pulpwood supplies, even where growing conditions and yields are good. As a result, hardwood chip imports to China have grown more or less in line with pulp production over the past fifteen years.
Since 2020 Chinese paper companies have announced very ambitious plans to install more chemical and high yield pulp lines which will be integrated with both existing - and new - paper and tissue capacity. The investments are supported by the Chinese government, and partly motivated by the desire to replace recycled fibre imports since the full implementation of National Sword policy by 2021. However, they are not in response to Chinese paper and board demand, which is maturing along with many other sectors of the economy.
Vietnam has been able to satisfy most of the growth in imported chip demand, steadily growing its market share in both China, Japan, and Korea. However, Vietnam is now reaching it’s maximum export potential just when Chinese demand for wood is accelerating. Chip supplies from more distant locations such as Australia, South Africa, and Latin America are less competitive and peaked some years ago.
Although Chinese paper companies seek to increase self-sufficiency in raw materials, they also operate in a competitive global industry, and continue to prioritise profitability and cashflow in the short-term.
The looming deficit in pulpwood is becoming increasingly evident, and chip prices are rising as a result, impacting the competitive position of both Chinese and Japanese paper producers.