Papermaker Nine Dragons’ profit sinks 51 per cent as it gets caught in the US-China trade war
Date: Wednesday, September 25, 2019
Source: South China Morning Post
- The Guangdong-based company paid 650 million yuan in tariffs to the Chinese government for waste paper imports from the US
- Company plans to reduce imports from the US to 15 per cent from 25 per cent currently, cut tariff bill to under 300 million yuan next year
Nine Dragons Paper (Holdings), Asia’s largest containerboard manufacturer, reported a 51 per cent decline in profit mainly because of tariffs on waste paper imports from the US, lower selling price and reduced profit margin, even as revenue and volumes rose to record highs.
The entire tariff bill of 650 million yuan (US$91.2 million) was paid to the Chinese government for importing recycled paper, recycled pulp and virgin pulp, the papermaker said.
The Chinese government applies 25 per cent tariffs on recycled paper and 20 per cent on recycled pulp.
The Hong Kong-listed company’s profit attributable to shareholders stood at 3.86 billion yuan for the year ended June 2019, compared with 7.85 billion yuan last year. It fell short of analysts’ expectations of 4.07 billion yuan in a Bloomberg survey.
Sales grew 3.5 per cent year on year to 54.65 billion yuan, missing estimates of 55.18 billion yuan. Volumes rose 8.5 per cent year on year to 14.1 million tonnes.
With the trade war showing no signs of ending soon, the company plans to lower the ratio of imported waste paper from the US to 15 per cent from 25 per cent in the next financial year, reducing the impact of tariffs to below 300 million yuan next year, chief financial officer Armstrong Zhang said.
Nine Dragons made more than 88 per cent of its revenue from China this year compared with about 9 per cent from the US.
“We have already shifted our business focus to the domestic market from this year, instead of relying on exports,” said chairwoman Cheung Yan, adding that the company was looking to increase its overall sales volume and market share in the mid to low end segment.
The Guangdong-based company will however remain prudent in raising prices despite record sales.
“The current market is not comparable with the previous years when there was great demand from the US before the trade war broke out,” Cheung said.
She said the company has been sourcing lower priced raw materials and producing low-end products for the domestic market this year to make up for the loss of exports.
The company said it would increase the use of domestic recycled pulp next year as the Chinese government tightens import quotas of recovered paper.
The company has a total paper and pulp production capacity globally of 16.4 million tonnes per year, which is expected to exceed 18 million tonnes when new projects and upgrades are completed.
Nine Dragons acquired a company in Malaysia this month with a capacity of about 500,000 tonnes a year.
The company will pay a dividend of 0.28 yuan per share for the year.