Chenming Paper has returned its major production bases to operation and sharply reduced its first-half loss, but its 2026 interim results show that the Chinese paper producer still has another difficult step ahead:

turning recovered production volumes into sustainable margins and cash flow.

Shandong Chenming Paper Holdings reported revenue of RMB 6.865 billion for the first half of 2026, an increase of 225.90% from RMB 2.107 billion in the same period last year.

Net loss attributable to shareholders narrowed to RMB 786 million, compared with a loss of RMB 3.858 billion in the first half of 2025.

Those headline numbers represent a significant improvement.

But they need context.

Chenming’s 2025 comparison period was heavily affected by suspended production. In March 2026, the company completed the full resumption of operations at its five major production bases following equipment maintenance and process upgrades.

The company itself attributes much of the revenue increase to the return of production and the resulting rise in machine-made paper sales.

So the 225.9% revenue increase should not be interpreted as Chinese paper demand suddenly tripling.

It is primarily the story of industrial capacity coming back online from an unusually depressed base.

The more important question is what that restarted capacity is earning.

Chenming Is Producing Again — but Paper Gross Margin Is Still Negative

Machine-made paper returned to the center of Chenming’s business during the first half.

Revenue from machine-made paper reached RMB 5.638 billion, up 402.76% year on year, and accounted for more than 82% of total group revenue.

But the cost of producing those grades reached approximately RMB 6.173 billion.

That left the machine-made paper segment with a reported gross margin of -9.49%.

This may be the single most important number in the interim report.

Chenming has successfully restarted the machines.

It is selling substantially more paper.

But on an aggregate basis, the core paper operation still did not cover its cost of sales during the first half.

That puts the recovery into perspective.

There is a major difference between:

restoring production,

and

restoring profitable production.

Chenming has made considerable progress on the first.

The second is still underway.

Some Paper Grades Improved Faster Than Others

The product breakdown also shows how dramatically production activity changed after the mill restarts.

First-half revenue included approximately:

RMB 1.519 billion from coated paper;

RMB 1.455 billion from duplex press paper;

RMB 1.071 billion from electrostatic paper;

RMB 528 million from white cardboard;

and RMB 240 million from thermal paper.

But profitability varied considerably by grade.

Coated paper recorded a slightly positive gross margin of 0.60%.

Duplex press paper reported -10.87%.

Electrostatic paper recorded -5.15%.

White cardboard was lower still at -12.51%.

This tells us something that the revenue-growth headline cannot.

Higher sales volumes alone will not complete Chenming’s recovery.

The company needs some combination of better selling prices, improved product mix, lower fiber and energy costs, higher operating efficiency and greater production stability to bring those margins back into positive territory.

For a large integrated pulp-and-paper producer, utilization matters.

But utilization without margin can simply turn fixed capacity into larger operating losses.

Chemical Pulp Performed Better Than Paper

Chenming’s integrated pulp operations provide another side of the story.

Chemical pulp generated approximately RMB 1.0 billion of revenue, up 35.16% year on year.

Unlike the machine-made paper business, the pulp segment reported a positive 6.82% gross margin.

That is relevant because one of Chenming’s long-standing competitive arguments is its integrated forestry-pulp-paper model.

Producing pulp internally can reduce some exposure to external market-pulp procurement and give the company more control over fiber supply.

But integration is not automatically profitable.

Pulp mills still carry substantial wood, chemical, energy, labor and maintenance costs.

The first-half figures nevertheless show that Chenming’s pulp operation was economically stronger than its downstream paper operation during this stage of the restart.

That means the company now needs to translate its upstream integration into better economics at the paper-machine level.

Revenue Recovery Has Not Yet Become Cash-Flow Recovery

Another number deserves just as much attention as the net loss.

Chenming generated RMB 322 million of operating cash flow during the first half.

That sounds positive until it is compared with the previous year.

Operating cash flow actually fell 58.95% from RMB 785 million in the first half of 2025.

The company attributes the decline mainly to increased spending on raw materials as its production bases returned to full operation.

Cash paid for goods and services rose from around RMB 1.31 billion to RMB 6.27 billion.

This is an important feature of a mill restart.

Bringing a paper mill back into production does not immediately create free cash.

Before finished paper is sold and collected, the company has to rebuild the operating cycle.

Wood fiber must be purchased or supplied.

Chemicals are consumed.

Energy is required.

Inventories rebuild.

Employees and logistics providers are paid.

Receivables increase as sales recover.

In other words, restarting production also restarts working-capital demand.

For Chenming, that matters particularly because liquidity has already been one of its largest financial challenges.

Finance Costs Are Falling — but Remain Heavy

There is better news on the financing side.

First-half finance expenses fell 30.31% year on year to RMB 561 million, compared with roughly RMB 805 million a year earlier.

Chenming has been negotiating with financial institutions on debt extensions and lower interest rates, while also repaying some borrowings.

Second-quarter finance costs also declined from the first quarter, according to the company.

That is meaningful.

For a highly leveraged paper producer, improving mill margins alone is not enough if a large portion of operating earnings continues to be absorbed by interest expense.

Every reduction in finance cost gives the operating business more room to recover.

But RMB 561 million remains a substantial burden relative to the company’s current earnings.

Debt therefore remains central to the turnaround.

The Balance Sheet Still Shows Severe Pressure

Chenming’s June 30 balance sheet explains why investors, suppliers and industry observers should remain cautious even after the improved first-half result.

The company reported:

RMB 7.33 billion of current assets, compared with RMB 39.75 billion of current liabilities.

Short-term borrowings alone stood at approximately RMB 20.94 billion.

Total liabilities reached RMB 48.97 billion against total assets of RMB 50.97 billion.

That means liabilities represented roughly 96% of reported assets at the end of June.

Equity attributable to shareholders of the parent company had also declined from approximately RMB 904 million at the beginning of the year to only RMB 156 million at June 30.

These numbers do not mean Chenming cannot recover.

They do mean there is limited room for another major operational setback.

This is why the company’s negotiations with banks, asset disposals and cost reductions are not secondary financial measures.

They are directly connected with whether the restarted mills have enough financial runway to complete the operating turnaround.

Chenming Entered 2026 With Going-Concern Pressure

That background is particularly important when comparing 2026 with the previous year.

At the end of 2025, Chenming had reported a full-year attributable loss of approximately RMB 8.30 billion.

Its auditor identified the assessment of the company’s ability to continue as a going concern as a key audit matter.

The 2025 annual report noted overdue financial-institution borrowings and supplier payments, as well as litigation and arbitration arising from overdue debts. Management responded with measures including production restarts, cost reductions, asset disposals and additional financing initiatives.

The first half of 2026 therefore represents progress from a very difficult starting point.

That distinction matters.

The correct question is not:

“Is Chenming healthy again?”

It is:

“Is Chenming moving far enough, fast enough, to stabilize the business?”

On that question, the interim report provides evidence in both directions.

Asset Disposal Is Helping Clean Up the Business

Chenming is also reducing its exposure to activities outside core pulp and paper manufacturing.

During the first half, the company completed the disposal of its interests and related creditor’s rights in Shandong Yujing Grand Hotel.

Cash received from the disposal of subsidiaries and other business units reached approximately RMB 492 million during the period.

Investment income also swung substantially, reaching RMB 247 million, compared with a loss of RMB 431 million in the prior-year period.

The company said the improvement reflected stronger income from investees as well as gains recognized from equity disposals.

At the same time, Chenming’s withdrawal from financial leasing reduced another source of risk.

Credit impairment moved from a loss of approximately RMB 506 million in H1 2025 to a positive RMB 42 million in H1 2026, largely because bad-debt provisions fell after the financial-leasing business had been fully divested.

This is another reason the narrowing net loss should not be attributed entirely to stronger paper operations.

The improvement came from several places:

mills restarted;

finance costs fell;

impairment pressure eased;

asset disposals contributed;

and some exceptional losses that hurt the prior-year comparison did not recur.

That is not a negative observation.

It simply helps us understand what kind of turnaround is taking place.

Overseas Sales Have Returned

International sales also recovered sharply.

Revenue from markets outside mainland China reached approximately RMB 1.216 billion, accounting for 17.71% of first-half revenue.

That compares with just RMB 31.5 million, or 1.5% of revenue, in the deeply disrupted comparison period.

Again, the percentage increase is extraordinary because the 2025 base was exceptionally low.

But the return of export volumes still matters.

A company operating multiple large pulp and paper bases needs access to more than one market.

Domestic Chinese paper demand and pricing can be highly competitive, particularly when significant industry capacity is operating.

Exports can provide another channel for restarted production.

The challenge is profitability.

Chenming reported only a 0.62% gross margin for overseas markets during the first half.

So increasing international sales is useful for rebuilding utilization, but export growth alone does not solve the margin problem.

New Products Could Matter More Than Another Volume Increase

Chenming says its next phase will include greater R&D investment and expansion of higher-value products such as industrial papers and food packaging papers.

R&D expenditure reached approximately RMB 123 million in H1 2026, up 235.24% year on year as operations resumed.

This direction makes strategic sense.

If existing commodity and semi-commodity grades remain under severe price competition, simply making more of them may not provide sufficient earnings recovery.

Higher-value specialty, industrial and packaging grades potentially offer another route.

But the word “potentially” matters.

New products need:

technical development;

customer qualification;

stable machine performance;

sales channels;

and enough market demand to generate attractive margins.

A new grade is not automatically a higher-margin grade simply because it carries a specialty label.

Chenming will need to prove that these products can contribute materially to earnings rather than merely broaden its catalogue.

Is China’s Paper Cycle Really Turning?

The supplied market commentary describes China’s paper industry as remaining near the bottom of its cycle.

That is broadly consistent with the difficult pricing environment reflected in Chenming’s own paper margins.

But Chenming’s results should not be used alone to declare either the bottom or the start of a broader industry recovery.

Its year-on-year comparison is unusually distorted by the company’s own shutdowns and restarts.

The more useful industry signals will be:

actual transaction prices;

mill operating rates;

industry inventories;

fiber costs;

capacity additions;

and profitability across several major Chinese producers.

Chenming can recover operationally even if the overall market remains difficult.

Conversely, a better market cannot fully repair Chenming if debt and operating costs remain too high.

The company therefore has both an industry-cycle problem and a company-specific balance-sheet problem.

Those two issues need to be kept separate.

The Second Half Will Be About Quality, Not the Size of the Rebound

It will be easy to look at Chenming’s second-half results and focus on another large revenue-growth percentage.

That would miss the more important indicators.

The company’s mills are now operating again.

The comparison base will gradually normalize.

From here, the turnaround needs to become visible in the economics of those tonnes.

For the second half, four indicators matter more than another headline sales increase:

machine-made paper gross margin; operating cash flow; finance expense and debt reduction; and the contribution from higher-value paper grades.

If paper gross margins move back above zero while cash generation improves, the argument for a more durable operational recovery will become much stronger.

If revenue continues growing but the core paper business remains gross-margin negative, Chenming will still be producing more without solving the central profitability problem.

The Question to Ask Is No Longer “Have the Mills Restarted?”

For paper suppliers, customers, creditors and competitors following Chenming, the production restart itself is now largely yesterday’s question.

The mills are back.

The next question is whether they can operate profitably enough to repair the balance sheet.

When Chenming publishes its next results, do not begin with revenue growth.

Start with the machine-made paper gross margin.

Then look at operating cash flow.

Then look at short-term borrowings and finance costs.

Finally, compare how much of the earnings improvement came from manufacturing with how much came from asset disposals, lower impairments and other balance-sheet measures.

That sequence will reveal much more about the turnaround than another triple-digit revenue number.

Chenming’s first half of 2026 shows genuine progress.

Production has returned.

Losses have narrowed dramatically.

Finance costs are moving lower.

Non-core risks are being removed.

But the same financial report also shows negative paper margins, weaker operating cash flow and an exceptionally leveraged balance sheet.

That makes the current stage best described as recovery, not recovery completed.

For Chenming, restarting five production bases was the first major test.

Making those tonnes profitable is the one that comes next.

Last Updated on 03/09/2026 by Jota Machinery