Pulp prices continue to rise, or will drive the paper industry competitive landscape change

Affected by downstream demand recovery, RMB appreciation and other factors, since November 2020, pulp prices have continued to strengthen, and futures market prices have continued to rise. "In fact, the current price of pulp is not very expensive, this round of pulp prices have not much impact on most of the head paper companies, and it can even be said that the advantages outweigh the disadvantages." Industry insiders told Cailiannews reporter that pulp prices are still far from the 2017 high and there is room to make up for it. In 2021, pulp supply will remain stable, superimposed demand recovery, freight prices are expected to continue to show an upward trend in the short term.

"This will change the competitive landscape of the industry." Some industry analysts to Cailiannews reporter analysis, pulp prices continue to rise, on the one hand, affected by rising production costs, there will be more industrial capital invested in the field of pulp production; On the other hand, with the rise in pulp prices, the profit margins of small and medium-sized paper enterprises will be further compressed, the low-end capacity of the paper industry will accelerate clearance, and the capacity will be concentrated in the head enterprises.

Driven by multiple factors, pulp prices continue to rise

According to different raw materials, pulp is mainly divided into wood pulp, waste pulp and non-wood pulp (bamboo pulp, grass pulp, etc.), and wood pulp is divided into broadleaf pulp and coniferous pulp according to different wood species. Different types of paper, the varieties of pulp used are not the same, double adhesive paper, coated paper, white cardboard, household paper and special paper are mainly used wood pulp, wrapping paper, box board paper, newsprint and so on are mainly used waste pulp.

wind data show that as of last week, the weekly average spot price of coniferous pulp and broadleaf pulp was 5150 yuan/ton and 4100 yuan/ton, respectively, and the monthly increase in December was 13.9% and 17.1%, respectively, up 825 yuan/ton and 600 yuan/ton compared to the lowest price of the year.

In terms of the futures market, the main pulp of the Shanghai Commodity Futures Market rose by more than 20% in December alone, and as of January 6, 2021, the main contract reached a maximum of 5,960 yuan/ton, hitting a new high since the listing.

A number of industry analysts, downstream demand recovery, relatively low valuation is the main reason for the strong pulp prices, in addition, January 1 since the import of waste paper to zero, the renminbi continued to appreciate, rising shipping costs, is also one of the driving factors for the rise in pulp prices.

In terms of pulp supply and demand, the global pulp supply in 2020 is basically stable, and the downstream paper industry has begun to recover in the second half of 2020. According to the latest data from PPPC, global coniferous pulp production is expected to be 27.985 million tons in 2020, down 2% year-on-year, while broadleaf pulp global production is expected to be 37.985 million tons in 2020, an increase of only about 0.2% year-on-year. At the same time, the supply pattern of the wood pulp industry is relatively concentrated, the concentration of large overseas pulp enterprises has increased, and the price has a strong right to speak, which can control the price of pulp by controlling the speed of production capacity.

The benefit logic of downstream paper enterprises

According to the announcements of listed companies in the paper industry, the raw materials based on pulp account for more than 70% of the cost of each paper, and even 85% of individual paper. So, the continuous rise in pulp prices for leading paper companies, why is it more beneficial than harmful?

Industry insiders told Caixin reporter that large paper companies such as Sun Paper (002078.SZ) usually maintain about 6 months of pulp inventory, through the adjustment of inventory and financial hedging means, large paper companies are often not sensitive to the rise in pulp prices.

At the same time, large enterprises with pulp and paper integration such as Chenming Paper (000488.SZ) and Sun Paper can be fully or partially self-sufficient in pulp, which is less affected by the rising price of pulp and has a higher cost advantage. According to the Sun Paper industry research report released by Orient Securities, due to its self-production capacity of pulp and high cost control level, the cost of cultural paper of Sun Paper is 553 yuan lower than the average cost of the same industry.

However, small factories are different, limited by capital and scale, small factories can only choose to buy spot production, pulp prices continue to rise, resulting in small factories tight capital, shortage of raw materials, customer loss. It is reported that the survival of small factories has been very difficult, there are already many small factories in the initiative to seek to be acquired, or declared bankruptcy, the industry's low-end capacity is accelerating clearance.

Leading enterprises are actively filling positions, and in 2020, many enterprises in the paper industry have launched new capacity or launched expansion plans for paper making.

Industry barriers appear, leading paper companies have launched pulp production capacity

It can be expected that the pulp capacity will become a medium - and long-term competition barrier in the paper industry, to this end, the major paper enterprises have launched pulp capacity. According to Zhuo Chuang Information statistics, in 2021 and after China's new pulp capacity accounted for about 52% of the world's new pulp capacity.

Caap reporter combing public information found that since 2019, including Nine Dragons Paper (02689.HK), Liwen Paper (02314.HK), Asia-Pacific Sambo, Chenming, Sun, and other large domestic pulp and paper enterprises have almost all launched new capacity plans for pulp, with a total of nearly 20 million tons of new capacity. At the same time, Mountain Eagle International (600567.SH), Liwen, Nine Dragons, Sun and other giants have chosen to deploy pulp production capacity in Southeast Asia, which is closer to the source of wood chip raw materials or overseas ports. Industry analysts believe that the new pulp production capacity of various paper companies will be put into production, and domestic large paper companies will obtain low-cost pulp, and their profitability will be further enhanced.

Chenming, Sun and Bohui, which have integrated production mode of forest pulp and paper, have lower cost advantages.

It is reported that Chenming Paper has the largest pulp production capacity in China, and the current self-pulping production capacity has been matched with its own paper production capacity. At the same time, the Huangganglin pulp and paper integration phase II project has started construction in December 2020, and the annual capacity of new pulp is about 1.05 million tons; Sun Paper is located in Laos, Guangxi Beihai forest pulp and paper integration project is gradually under construction, the project will be put into operation will greatly improve the company's pulp self-sufficiency rate; Bohui Paper has its own pulp production capacity of about 800,000 tons/year. With the ownership of APP Group, the company may obtain better wood pulp and enjoy rich cost dividends through APP's upstream forest land and abundant raw material resources at home and abroad.