Slurry price resumption and deduction, this round of costs into the decline cycle

Weaker overseas demand more certain: Against the backdrop of high inflation and Fed rate hikes, weaker external demand is already visible. In Europe, in August 22, the European port drift needle pulp inventory began to show a significant month-on-month upward trend, compared with the European port wood pulp inventory of 214,000 tons in July, an increase of 9.4% in August to 234,000 tons, and continued to increase 1.6% in September to 238,000 tons, close to the inventory level in March this year. We believe that the increase in port inventory is mainly due to the weakening of European demand, the eurozone manufacturing PMI has dropped below 50 (49.8) since July and still shows a downward trend, PMI data in December 22 was 47.8, and it is expected that the port inventory of European drift needle pulp will still increase. The US manufacturing PMI also showed a downward trend, and the PMI data in December 22 was 46.2, and the demand was weakened.

Domestic demand is expected to gradually repair in 2023: this year, Changshu Port and Qingdao Port pulp stocks are still basically maintaining a differentiated trend, and the overall inventory in November fell slightly by 0.84% from October, slightly loosening, but still at a high level since 2017. In terms of imports, broadleaf and coniferous pulp imports have remained relatively low since March, reaching the lowest value of 905/533,000 tons in July this year; The import volume increased significantly in August and September, and we expect that the main reason is that the pulp price from April will lead to domestic pulp and paper enterprises to stockpile pulp, and the wood pulp to Hong Kong is lagging behind; In October, imports fell back to 971/562,000 tons. On the one hand, the low import volume is due to weak domestic demand, and on the other hand, the higher price of overseas pulp has led to more wood pulp shipments to overseas. Although driven by the optimized conditions for epidemic prevention and control, the demand side is expected to recover slowly, but the short-term uncertainty is strong, and it is expected that the repair needs to "exchange time for space" in 2023.

According to Hawkins Wright's statistics, in 2020, the weighted average cost of coniferous pulp and broadleaf pulp (BSKP and BHKP) in all regions of the world is about US $510 / ton and US $340 / ton respectively. Historically, the average cost of coniferous pulp is basically in the range of US $400-600 / ton. The cost of broadleaf pulp basically falls in the range of $300-450 / ton. Due to the shortage of wood chips, we reasonably expect an increase in costs in 2021-2022, with historically high costs in 2022. We found that the profit of wood pulp has a relatively obvious periodicality, among which broadleaf pulp is more obvious. According to the historical cycle change, the current profit of coniferous pulp and broadleaf pulp in 2022 basically reached the top of the current period, and the upstream pulp mill has a large profit and a large space for decline. In 2023, the profit of wood pulp is expected to enter a downward stage along the cycle evolution. And most of that comes from falling prices.

In summary, the supply side based on more than one million tons of broadleaf pulp project trial production, pulp supply tension gradually eased; Overseas demand side of the United States PMI weakness or will enter the recession cycle, the deterioration of the trade pattern under the influence of the European war, the gradual reflection of weak demand, it is expected that the short-term downward inflection point of overseas demand is clear, and domestic demand repair is slower than the decline in external demand, so the overall demand side is difficult to continue to support the high price; The profit situation of wood pulp is expected to enter the downward stage of profit brought about by the fall in pulp price. Therefore, although the pulp price in 2022 is affected by the previous stage to maintain high volatility, we expect 2023Q1 to continue to significantly decline, the rhythm is a small number of downward, 2023 outer price as a whole or down about $150-200.

Second, bulk paper: pro-cyclical market, the right side of the culture, the left side of the cloth packaging

2.1, cultural paper: small and medium-sized production capacity is gradually introduced, and supply and demand are weak

Demand side: According to ifind statistics, the consumption of coated paper in 2021 reached 5.79 million tons, an increase of 4.14%, the consumption of double-adhesive paper reached 8.65 million tons, a decrease of 2.05%, and the consumption of cultural paper is expected to be about 14.71 million tons in 2022. Supply side: Rising pulp prices increase the cost pressure of small and medium-sized enterprises, and under the influence of carbon peak and carbon neutral policies, the supply-side reform of the paper industry has accelerated significantly, and the emission reduction cost of small and medium-sized enterprises is higher, which accelerates the gradual withdrawal of small and medium-sized production capacity. According to statistics, in 2021, the double adhesive paper production capacity is 13.25 million tons, the new production capacity is 1.05 million tons (Sun Paper 550,000 tons, Asia-Pacific Sembo 500,000 tons), the coated paper production capacity is about 7 million tons, and there is no new production capacity. In 2022, about 1.8 million tons of new production capacity of cultural paper is planned to be put into operation, all of which are double-tape paper production capacity.