Consumption off-season downstream demand is weak, is there an investment opportunity in the paper sector?

Affected by the oversupply of pulp last year, pulp futures rose sharply, but this year, pulp futures failed to extend the rising market. Since the beginning of 2023, pulp futures prices have been in a downward trend, falling 22% in less than 6 months. On June 8, 2309 paper pulp futures contracts also hit a low of 4926 yuan/ton, down 0.79% on the day, closing at 4998 yuan/ton.

At the same time, affected by pulp import data, the spot price of pulp in Shandong on June 8 was 5150.00 yuan/ton, compared with the premium of 152.00 yuan/ton for the main price of futures. In the face of the volatility of pulp prices, leading companies in the paper sector have responded to investor inquiries on the interactive platform, Chenming Paper (000488.sz) said on the interactive platform that the current self-pulping than imported commodity pulp still has a certain advantage.

Pulp imports surged in May

"On June 8, the pulp futures price hit a low of 4926 yuan/ton, and now this price is the lowest point this year." Futures spot prices fell synchronously, June 8 East Russia coniferous pulp spot offer 5000 yuan/ton, compared with the previous day down 50 yuan/ton, the reason for the new low spot and May pulp import data, May pulp imports of 3.156 million tons, +17.1%." Citic construction investment futures analyst Wu Xinyang told the China Times reporter in an interview.

Mr. Li, who has long been engaged in the spot trade of pulp, told reporters that the change in the spot import volume of pulp has a significant guide to the unilateral price of pulp. As the overall import volume of pulp in May is huge, if the next high growth continues, the import volume of coniferous pulp in pulp imports will also maintain a high growth rate, which will lead to a further decline in spot prices.

Wu Xinyang said that this year UPM UPM Group (hereinafter referred to as "UPM") new pulp plant and other plants put into operation on schedule, objectively increasing the supply of broadleaf pulp. The new Kemi pulp plant in Finland is expected to start production in the second half of this year, and there are still plans to start production of coniferous pulp in 2024. Therefore, under the background of the general trend of production, the price of pulp in the far month is weakening.

However, the reporter found that compared with the wave of pulp futures skyrocketing from 2021 to September 2022, pulp futures prices have been in a decline this year. In this regard, Wu Xinyang believes that the skyrocketing in 2021-2022 is the result of a combination of factors, the interest rate hike in the United States led to a decline in real estate starts and permits, and the demand for softwood sawn timber declined, while the pulp is small caliber softwood wood or sawn wood scraps, and the production also declined, resulting in a higher cost of softwood chips in North America.

At the same time, port and rail strikes in North America have led to restrictions on pulp shipments in North America. At that time, European pulp prices were higher than in China, and the value of pulp was low relative to the value of other goods. Therefore, after the resumption of work, the first to achieve shipment repair is Europe, or other global goods, because the pulp supply is tight at that time.

However, the decline in pulp prices this year has come from the growth of pulp supply and, more seriously, from the growth of coniferous pulp imports. In this regard, Li Qing, an analyst at CITIC Futures, said in an interview with the China Times that according to the matching of the operation results of pulp futures with supply and demand data, it can be seen from the historical law that the unilateral drive of conifer pulp futures mainly comes from two dimensions: the marginal change of import volume compared with the same period last year and the accumulation/removal cycle of the industrial chain.

Li Qing said that the underlying logic of this round of decline (which began in October last year) is that after the decline in European consumption, the transfer of pulp to the Chinese market has led to a significant increase in Chinese softwood pulp imports. In addition, high inventories in the European market have also led to further declines in pulp prices. At the same time, macroeconomic data is also in a downward state, and from the current supply and demand situation, there is no sign that this downward cycle is coming to an end. As a result, pulp futures prices have fallen since the beginning of the year.

Weak downstream demand in off-season consumption

"From the demand side, in addition to the current good performance of household paper, other paper are facing the problem of excess capacity. If the price of white cardboard has fallen to about 4500 yuan/ton, downstream paper mill profits decline, losses lead to a slowdown in upstream demand, overseas pulp plants have also cut prices, Arauco company announced a new round of offer, coniferous pulp silver star flat reported to 680 US dollars/ton, at the beginning of the year near 900 US dollars." Zhao Xiaojun, manager of Zhongda capital period, said in an interview with our reporter.