We have heard some voices in the market concerned about the sharp rise in paper cost in China over the last few months. Paper incurs a significant portion of the total manufacturing cost in the production of paper related products, with all players in the supply chain being affected by the cost situation to a certain extent. We would like to take this opportunity to update you about the current situation.
Starting in September 2016, there was a prolonged wave of paper cost increase in China. According to the market information from paper mills in China, the cost of different paper types was changing and rising fiercely about every 2 weeks. When comparing the costs in September 2016 to the cost in February 2017, the cost increased for most of our common papers varied from 20% to 40%. It is projected that these costs will continue to increase.
In order to mitigate the foreseeable cost impact projected for the coming months, Leo and many other paper merchandisers have set replenishment levels much earlier than our usual practice. We hope to keep enough paper stock advance as much as possible.
We encountered many difficulties throughout this time, despite already negotiating agreed price levels at certain volumes of paper purchases in advance. China paper mills still insisted on increasing their cost regardless of the agreed price range. The China paper mills would not supply us paper if we did not accept their increased prices. So, we have had no choice but to accept the rising cost.
We have looked into the circumstances and reasons left paper raw material costs have been dramatically increasing. According to the information from our paper mills in China, the current cost of coal is already more than double its cost from June 2016. Meanwhile, the major raw material used in making paper, pulp, has already increased 40% in cost in February compared to the cost in October 2016. Among others, chemical component costs have increased over 60%. Even logistics have reported a cost increase of more than 30% due to stringent truck loading limits imposed by the China Government in 2016. All these factors have contributed to the overall paper cost increase throughout the manufacturing process.
In addition, an imbalanced paper supply and demand have made the situation aggravated. The paper supply dropped because of tightened control of ineffective and polluted producers in China, in line with national environmental policies. This led to a decrease in the capacity to produce paper and also resulted in a number of small-to-medium-sized paper mills shutting down. Although we have already advance ordered more than usual due to this situation, it has inevitably affected manufacturing costs in paper products.
In short, 2017 continues to be a very challenging year in particular due to the cost influence and adverse impact from the paper industry in China. We are collaborating with our suppliers to maintain a healthy paper supply by all means. We are also exploring alternative material sources, construction, innovative solutions and other ideas in the hope to minimize impacts on our clients. We cannot ignore nor assume all these adverse cost impacts on our own. Through closer collaboration with all our business partners, we hope to positively react to minimize the impact in our supply chain.
Please do not hesitate to contact our sales representatives if you have any concerns or needs in this regard.