Raw materials squeeze hits Nine Dragons

Hong Kong-based recycled-content paperboard maker Nine Dragons Paper (Holdings) Ltd. has issued a profit warning for its fiscal year that ended June 30, citing finished board selling prices that did not rise as fast as raw materials prices.

“The board wishes to inform the shareholders of the company and potential investors that, based on the preliminary review of the management accounts of the group, if the exchange gains on operating and financing activities (net of tax) were excluded, the profit attributable to equity holders of the company for the year is expected to decrease not more than 60 percent as compared to the last year,” Nine Dragons board Chair Cheung Yan says.

In her letter dated Aug. 26, Yan adds, “The decrease [in profits] was mainly [because] the increase in the selling price of the products was much slower than the increase in the cost of raw materials with sales volume remain[ing] relatively stable amid the COVID-19 pandemic.”

She continues, “As the company is in the course of preparing its annual results for the Year, the information contained in this announcement is only a preliminary assessment by the board based on the information currently available.”

Yan adds, “Shareholders of the company and potential investors are advised to exercise caution when dealing in the shares of the company.”

In the 2000s and early 2010s, the Nine Dragons network of mills in China was one of the largest importers of old corrugated containers (OCC) and other recovered paper grades, bringing in millions of tons of material from the United States and Europe.

As China first tightened and then eliminated such imports, Nine Dragons has pivoted to domestic recovered paper supplies and has brought in semifinished pulp, including from facilities owned by its Illinois-based subsidiary ND Paper.

That strategy, along with siting new capacity in Malaysia, allowed Nine Dragons to record considerable profits earlier this decade. Earlier in 2022, however, the company was not able to take full advantage of lower global OCC pricing. As well, the late 2021 and first-half 2022 economy in China has been affected by intermittent COVID-19-related shutdowns and a slowdown in activity in the real estate construction sector.