Currently, the demand side of the pulp and paper industry is showing weak performance, coupled with concentrated capacity expansion, the supply-demand conflict continues to be under pressure, and prices keep declining.
According to the Securities Times app, China Galaxy Securities released a research report stating that the demand side of the pulp and paper industry is showing weak performance, coupled with concentrated capacity expansion, the supply-demand conflict continues to be under pressure, and prices keep declining. Subsequently, with the gradual implementation of recent economic policies and further efforts in future policies, overall economic and end demand are expected to improve, potentially triggering a new rising cycle. At the same time, the early rise in pulp prices in 24Q1 led to a quarter-on-quarter decline in enterprise profits in 24Q2, with the impact expected to continue into 24Q3. The downward trend in pulp prices since mid to late May is expected to improve the financial statements in 24Q4.
China Galaxy Securities' main points are as follows:
Raw Materials: As of October 11, 2024, in the Chinese main port market, the daily external prices of ARAUCO softwood pulp (silver star) and ARAUCO hardwood pulp (starlight) were 765 and 570 US dollars per ton, respectively, with year-on-year changes of +4.79% and -1.72%, and month-on-month changes of 0% and -1.72%. On October 12, 2024, the daily average prices of softwood pulp, hardwood pulp, and bleached pulp in China changed by -0.72%, -15.47%, -22.15% year-on-year, and by +3.25%, -0.57%, 0% month-on-month. Regarding waste paper, on October 12, 2024, the daily average price of scrap yellow board paper (Grade A) in China decreased by -6.52% year-on-year and by -1.28% month-on-month. In September, the import price of mixed waste paper 12# in Southeast Asia continued to decline, with mainstream prices in the market ranging from 280-290 US dollars per ton, based on actual orders.
Cultural Paper: On October 12, 2024, the daily average prices of coated paper and coated art paper in China decreased by -13.49% and -6.46% year-on-year, and by -1.53% and -0.18% month-on-month, respectively. The release of publishing orders has been delayed compared to previous years, with market demand in September not increasing as expected. Essential support is relatively weak, social orders perform poorly, and overall demand shows signs of weakness. Additionally, the continuous decline in pulp prices has insufficient cost support, resulting in a certain impact on cultural paper prices. In the future, with further progress in the bidding work for publishing, it is expected that essential orders will see a phase of increase, possibly entering the delivery period in November, but overall demand improvement is expected to be limited.
White Cardboard: On October 12, 2024, the daily average price of white cardboard in China decreased by -12.68% year-on-year and by -2.89% month-on-month. With a large-scale injection of capacity for white cardboard, the average capacity growth rate from 2023 to 2025 exceeds 10%, leading to continued competitive pressure. In the short term, in terms of supply, 1.2 million tons of new capacity in South China are planned to start after National Day, increasing market supply. Although there have been releases of some orders around Singles' Day, Christmas, and New Year, the overall increase in market demand is expected to be less than the increase in supply, potentially leading to further supply-demand conflicts.
Corrugated Box Paper: On October 12, 2024, the daily average prices of corrugated paper and boxboard paper in China decreased by -12.72% and -6.51% year-on-year, and increased by +0.36% and -0.12% month-on-month, respectively. Demand performance during peak season has been weak, with basic supply-demand balance in early September. Towards the end of September, as Mid-Autumn Festival orders decreased, consumption volume dropped, leading to gradual expansion of supply-demand pressure. Inventory levels remain high, potentially posing continued pressure. In September 2024, the monthly enterprise inventory percentile for corrugated paper and boxboard paper in China has been at or above 91.3% and 96.5% since 2015.
Tissue Paper: On October 12, 2024, the daily average price of wood pulp tissue paper in China decreased by 5.99% year-on-year and by 0.53% month-on-month. The main factors affecting the price trend of tissue paper include: 1) The northern region's market has a good sales momentum, paper companies have smooth shipments, and prices are trending upwards under active promotion. However, due to inventory clearance needs, there are situations of partial regions offering discounts at the end of the month; 2) Hindered by the fall in raw material prices, although the sales in the southern market have improved, the paper prices lack strength in raising, maintaining a relatively stable market focus.
Recommendation on targets: Leading companies in the pulp and paper industry include Shandong Sun Paper (002078.SZ), Yueyang Forest & Paper (600963.SH), leading companies in tissue paper such as Hengan Int'l (01044), C&S Paper Co., Ltd. (002511.SZ), leading companies in specialty paper like Hangzhou Huawang New Material Technology (605377.SH), Xianhe Co.,Ltd. (603733.SH), Wuzhou Special Paper Group (605007.SH).
Risk Warning: Risks of downstream demand falling short of expectations; risks of substantial increases in raw material prices; risks of intensified industry competition.
