The monthly reduction in production by Shandong Chenming Paper (000488.SZ) is expected to have a certain impact on domestic paper prices. In the short term, the supply is shrinking, and demand has not shown any significant changes. It is expected to stop the current downward trend of paper prices, which is bullish for the industry's business environment.
According to the information from the "Securities Times" app, GF Securities released a research report stating that, according to data from Zhuochuang Information and the latest statistics from the National Bureau of Statistics, in September 2024, China's production of mechanical paper and paperboard reached 13.333 million tons, up by 2.5% year-on-year, with a cumulative increase of 10.2% from January to September 2024. The monthly reduction in production by Shandong Chenming Paper (000488.SZ) is expected to have a certain impact on domestic paper prices. In the short term, the supply is shrinking, and demand has not shown any significant changes. It is expected to stop the current downward trend of paper prices, which is bullish for the industry's business environment. It is recommended to pay attention to Shandong Sun Paper, which maintains a stable leading position in cultural paper and actively expands the production of high-end paper varieties; focus on ND Paper (02689), Shandong Bohui Paper Industrial (600966.SH), Shanying International Holdings (600567.SH), etc., as the expected recovery in paper prices will drive the performance of related companies.
GF Securities' main points are as follows:
Since Q3 2024, paper prices have been declining, putting pressure on papermaking companies' performance.
As of November 15, 2024, according to Zhuochuang data, the prices of coated paper and copper plate paper have reached 5113 and 5340 yuan/ton respectively, down by 12.8% and 9.9% compared to the beginning of the year; the prices of boxboard paper, corrugated paper, and white cardboard paper have reached 3628, 2710, and 4155 yuan/ton respectively, down by 5.8%, 7.0%, and 13.3% compared to the beginning of the year, with paper prices still running low this year. Currently, cultural paper is in the off-season, and it is expected that the bidding for textbooks and teaching aids during the spring and fall school seasons will significantly boost cultural paper prices. In terms of packaging paper prices, the slump is more related to the demand environment, as domestic consumption in 2024 remains under pressure. The current Singles' Day e-commerce festival is coming to an end, with limited impact on packaging paper prices during the holiday period. Affected by factors such as paper prices and inventory, some papermaking companies experienced a slowdown in revenue growth and a decline in profits compared to the previous quarter in Q3 2024, with leading companies showing greater resilience among them.
Shandong Chenming Paper's profit turned negative, and both its debt repayment and financing capabilities declined.
On November 19, 2024, Shandong Chenming Paper released an announcement regarding the default on some debts and the freezing of some bank accounts, due to multiple factors such as weak consumption, overcapacity in papermaking, the company's profitability has been continuously declining. According to the company's Q1-3 2024 quarterly report, the profit turned negative from Q1 to Q3 2024, achieving a net loss of -0.71 billion yuan, with its operation significantly under pressure. At the same time, some financial institutions have been seen reducing loan amounts, leading to tight short-term liquidity for the company and a weakened debt repayment capability. In addition, due to overdue debts and guarantees, the company and its subsidiaries may face risks of penalties, fines, and other fines, causing an increase in financial expenses and the financing capability facing downward risks.
To address the short-term crisis, Shandong Chenming Paper has passively reduced production and imposed production restrictions.
To reduce losses, Shandong Chenming Paper has implemented production restrictions and shutdowns at some production bases since November 24. As of November 19, 24, Shandong Chenming Paper's Shouguang base had one white cardboard production line, one cultural paper production line, and one copper plate paper production line, Zhanjiang base had a chemical pulp production line, one cultural paper production line, and one white cardboard production line, Jiangxi base and Jilin base were affected and temporarily shut down. Chenming Paper expects a total shutdown of pulp and paper production capacity of 7.03 million tons, accounting for 71.7% of the company's total capacity. During this period, the estimated monthly impact on pulp and paper production volume is approximately 0.58 million tons and paper sales volume is about 0.35 million tons.
Risk Warning: Economic recovery falls below expectations, industry's significant increase in new production capacity, paper price recovery not as expected, upward risk in raw material prices, etc.
