Supply contraction is difficult to change downstream downturn pulp strength is difficult to continue

First, pulp price historical trend and 2021 market review

In the long run, the operating trend of pulp prices is highly correlated with the global economy, and the cyclical demand for household paper and cultural paper in the terminal demand is weaker than that of other industrial products, whether it is the sharp fall in 2008, or the sharp rise in 2010 or 2017, behind the supply interference, and the price "outlier" duration is relatively short. The period from 2008 to 2021 is mainly divided into the following stages:

The first stage: 2008-2009, the global economic crisis, the sharp decline in demand, the price of industrial products fell, pulp was not spared, the price of China's drift needle pulp fell to around 4000 yuan.

The second stage: In 2010, Chile, the main supplier of wood pulp, suffered an 8.3-magnitude earthquake, and the Arauco pulp plant stopped production, directly affecting 8% of the global commodity pulp supply and 14% of China's wood pulp imports, while Finland appeared large-scale strikes, and the price of needle pulp rose rapidly from 4000 yuan/ton in 2009 to 8000 yuan/ton.

The third stage: after 2011, the impact of the phased supply contraction gradually eased, the global commodity pulp production capacity steadily increased, the downstream paper demand growth slowed down, the supply and demand gradually returned to the equilibrium state, the price of bleaching needle pulp fell from a high level, stabilized at 4400-5000 yuan/ton in 2012-2016, and broke through to 5200 yuan/ton in some time, the fluctuation was small.

The fourth stage: In the first half of 2017-2018, China's paper industry has undergone major changes, the clearance of small and medium-sized production capacity coupled with sudden environmental protection restrictions, with the recovery of demand, driving the price of finished paper to rise, including the main paper types, including cultural paper, wrapping paper and household paper, from 2016 to 2017, the highest increase of more than 50%, the profit of paper mills has rebounded significantly. And directly led to the upstream demand for wood pulp, and supply, due to low prices, Indonesia OKI production line production is lower than expected, CMPC's Brazilian pulp plant announced to stop production for 4 months due to boiler damage, domestic environmental protection due to the removal of a large number of non-wood pulp capacity, wood pulp alternative demand increased. To this end, the price of wood pulp rose by 60% in a year.

The fifth stage: in the second half of 2018 -2019, after the high price of wood pulp for nearly a year, the supply of foreign pulp mills was rapidly put into operation, while the demand for finished paper declined, the terminal demand weakened, and the stock of wood pulp accumulated in large quantities. The global commodity pulp market entered the destocking stage from the replenishment stage, and the pulp price accelerated its decline, and by the end of November 2019, it had returned to the starting point before the rise in 2016, falling by 40%.

The sixth stage: In 2020-2021, affected by the global epidemic, pulp continued to fall in the first half of 2020, rebounded sharply after August, and then gradually moved up the bottom, entering the first quarter of 2021, the price of spot finished paper began to rise sharply, the price of white cardboard exceeded 10,000, and pulp continued to rise by this drive, and the outer dollar offer was close to $1,000. Domestic also broke through the previous high. However, beginning in the second quarter, paper prices began to weaken, and drove pulp prices down in the third quarter, and domestic pulp prices fell again to near historic lows.

2. Availability

(1) Global shipments of wood pulp to China have decreased significantly

In the first 11 months of 2021, China's pulp imports totaled 27.78 million tons, a decrease of 1.3% year-on-year, and an increase of 12.5% in the same period of 2020. Imports in the first half of the year were higher, an increase of 7.9%, and imports gradually fell after July, and from July to September, China's pulp imports decreased by 12.7%. In the first 10 months, the import volume of bleached needle pulp was 7.13 million tons, down 1.9% year-on-year, accounting for 28% of imports, and the import volume of bleached needle pulp was 20.53 million tons, down 6.7% year-on-year, accounting for 42% of imports.

In terms of global shipments, according to PPPC statistics, the total shipment of W-20 commercial pulp from January to October 2021 decreased by 4% year-on-year, of which shipments to China decreased by 10.1%, Western Europe increased by 3%, and North America decreased by 1.8%, by varieties, coniferous pulp and broadleaf pulp decreased by 4% and 5% respectively, and this color paste increased by 18.8%. The sharp decline in Chinese demand has led to a reduction in global commodity pulp shipments, which has also led to a low recovery in producer inventories.

From the shipments of major countries, from January to October, Russia exported a total of 873,000 tons of coniferous pulp to China, a decrease of 16%, and Chile exported a total of 1.095 million tons of coniferous pulp to China, a decrease of 2.7%. In terms of broadleaf pulp, Brazil's exports to China totaled 5.7 million tons, down 13.7% year-on-year.

Combined with the global pulp price in 2021, the profit level of the pulp mill remains relatively high, so the willingness to actively reduce production is weak, but the shipment is significantly reduced, the core is the decline in demand. In terms of global production capacity changes, there will be a small increase in the production capacity of coniferous pulp before 2024, a small amount of production capacity will be put into Mercer in 2022, and the production capacity of drift needle pulp will increase in 2023, and the production capacity of broadleaf pulp is relatively large.

(2) Domestic wood pulp production capacity increased

From the statistics of Zhuo Chuang, according to the production capacity of sample enterprises, it is estimated that in the first 11 months of 2021, China's total output of broadleaf pulp is 7.2 million tons, an increase of 3%. From January to October, China imported 12.45 million tons of broadleaf wood chips, an increase of 14.7%, and the import of coniferous wood chips was 700.15 million tons, an increase of 216.9%. In 2020, China's chemical pulp production was 5.03 million tons, and the output in 2021 was down year-on-year.

In the next few years, China plans to add new wood pulp capacity:

Liansheng Paper Zhangzhou Fujian 1.2 million tons of wood pulp;

Huatai Paper Dongying 700,000 tons of chemical wood pulp project;

Xianhe Paper Guangxi Project 1.5 million tons of self-pulping (eucalyptus, bagasse);

Nine Dragons Paper has a wood pulp production capacity of 600,000 tons in Hubei Jingzhou and Liaoning Shenyang (planned by the end of 2022). In 2021, Nine Dragons plans to add 1.1 million tons of bleached chemical pulp production line in Jingzhou.

Overall, in the next two years, the global new production capacity of needle pulp is still small, in 2021, China's demand is weak, resulting in a rebound in global stock of needle pulp, supply and demand turn loose, so in 2022, the supply and demand of needle pulp still depends on China's demand, supply is stable, the large surplus may not be large, if domestic consumption continues to recover after the epidemic, finished paper demand improves. Driven by the recovery of the paper mill opening probability, it may cause the phased supply of needle pulp to be tight, and the overall global supply elasticity of needle pulp is low, and price fluctuations are amplified.

Third, the demand

According to the statistics of Hawkins Wright, PPPC and other institutions, the total global demand for papermaking wood pulp is 412 million tons per year, of which 179 million tons of primary wood pulp, accounting for 44%, 70 million tons of commercial wood pulp, 26 million tons of coniferous pulp demand, 38 million tons of hardwood pulp, coniferous pulp in the northern drift needle pulp accounted for more than 60%.

(1) Domestic consumption has weakened amid setbacks

In 2021, the recovery of domestic downstream consumption is reasonable, and from the two-year average growth rate, the consumption of most finished paper demand terminal industries has recovered faster. As of October, the average growth rate of retail sales of food, beverage and tobacco and alcohol is 7%, 15% and 9% respectively; the cumulative average growth rate of retail sales of cosmetics, daily necessities and office supplies is 14%, 10% and 13%; the average growth rate of retail sales of sports and entertainment supplies is close to 25%; the growth rate of retail sales of some remaining industries, such as clothing, shoes and hats and Chinese and western medicines is slightly lower. They were 1% and -1.3%, respectively, while the average growth rate of retail sales of books, newspapers and magazines directly related to cultural paper was 9%. The sporadic epidemic in 2021 in China still has a certain impact on consumption, especially the slow recovery of offline catering consumption, and the "double reduction" policy in the education industry has led to a greater impact on the demand for cultural paper, and the final impact is still some time to observe, and the impact on the demand for cultural paper in 2022 is expected to be greater. The Central Economic Work Conference did not have a clear stimulus policy statement on consumption, pointing out that "we must adhere to the priority of saving and implement a comprehensive saving strategy", "In the field of consumption, enhance the awareness of the whole people to save, and advocate a simple, moderate, green and low-carbon lifestyle", and after the impact of the local epidemic in 2021, the bottom of domestic consumption gradually appeared. The follow-up is to test the intensity of endogenous consumption, and since 2020, under the impact of the epidemic, the growth rate of residents' income is limited, and the demand for preventive savings is expected to increase, and the consumption performance in 2022 will be more stable. The industry close to the must consumer goods is expected to be slightly stronger, optional consumer goods are expected to grow at a general rate, the growth rate of wrapping paper demand is expected to increase slightly, and the demand for cultural paper is expected to decline year-on-year.

Investment has an indirect effect on the demand for finished paper. In the second half of 2021, the rapid decline of the domestic real estate market, the decline in the growth rate of commercial housing sales, the credit crisis of large housing enterprises, the delay of construction, affecting many industries in the upstream and downstream of real estate, and the demand for wrapping paper and cultural paper have also caused direct and potential disadvantages, such as the demand for some promotional materials.

(2) The trend of finished paper production capacity is differentiated

In 2021, the production capacity of domestic finished paper continued to increase, and in the first half of the year, the industry put into production capacity of about 1.51 million tons, reaching the highest level in the same period in history. Includes:

Zhongshun Jierou (002511) 2 paper machines before the 100,000 tons expansion project in Xiaogan Base is put into operation;

Jinhongye put into production the first paper machine with a production capacity of 780,000 tons in the new base in Nantong, and 60,000 t/a in Xiaogan base;

Libang Group put into operation 50,000 tons of production capacity in Xiaogan base;

Taisheng Group put into production the first batch of 250,000 tons of capacity in a new base in Anhui;

Shengquan Group's new base in Jinan was 20,000 tons, and the new base in Daqing, Heilongjiang put into production the first 100,000 tons.

From the relevant news disclosed by the market, more than 7 million tons of projects have been announced in 2022 and beyond. Domestic finished paper production capacity is still in the rising stage.

The total production of finished paper increased, but the production of wood pulp paper decreased. From January to October 2021, the cumulative output of finished paper in China increased by 8.4% year-on-year, and the paper production gradually fell in the second half of the year, the probability of paper mill opening fell sharply in September, and the output of finished paper fell with it, and in September, the output fell to the low value in the past five years, and after October, with the impact of power rationing weakened, the paper mill started up. Among them, the box board corrugated paper remained stable, while the output of other paper fell.

Combined with Zhuo Chuang statistical data, from January to November, white cardboard production decreased by 7%, household paper production decreased by 4%, coated paper and double adhesive paper production decreased by 16% and 3%, from the sample paper factory statistics of finished paper production changes, the first 11 months of domestic pulp demand reduction is expected to reach 1.6 million tons. The decline in production of wood pulp paper mill mainly occurred in the second half of the year, after the paper price began to fall in the second quarter, the profit of paper mill was lower, the warehouse was poor, and the probability of paper mill opening declined.

From the point of view of the price of finished paper in 2021, most of them have experienced large fluctuations. The large axis base paper in Hebei region reached 7000 yuan/ton in March, and then gradually fell to less than 6000 yuan in September, and rose slightly by 5% in the fourth quarter, rising to 6300 yuan/ton. At the beginning of the year, the rising cost of wood pulp and the downstream replenishment before and after the Spring Festival led to the continuous rise of life paper, but then the demand turned weak, the downstream acceptance capacity was insufficient, leading to the price reduction of paper mills, after the wood pulp fell, the cost of the lack of support, the paper mill still raised prices in the middle of the year, but failed to implement, until October, with the decline in early construction, supply pressure relief, life paper did not rebound. The current price is on the low side of the five-year median value. The increase in household paper production capacity is large, and there is still a large amount of production capacity after 2022, which also leads to low capacity utilization, and it is difficult to maintain a high paper price.

White cardboard rose to 10,000 yuan/ton in early 2021, began to gradually decline in May, and fell to less than 6,000 yuan/ton in the second half of the year, after November, domestic demand was weak, and the market feedback export orders were acceptable, driving the price of white cardboard to rebound. White cardboard plans to put more production capacity in the future, but the white cardboard market concentration is extremely high, so the price control ability is stronger than household paper.

Demand for cultural paper was initially affected by the "double reduction" policy in the second half of the year, and demand and price performance were weaker, the average price of double-tape paper fell from the highest 7300 yuan/ton in March to 5300 yuan/ton at the end of September, and returned to 5600 yuan/ton in December, basically the low range since 2016, and the difference between the high and low points of double copper paper in the year also reached 2000 yuan/ton. And the rebound at the end of the year is small, and the current price is at a low level since 2017. Demand for cultural paper is still facing downward pressure, the continuation of the trend of paperless, coupled with the negative impact of the education industry, which makes the price of cultural paper under pressure with demand."

The weakness of finished paper led to a sharp decline in the immediate production profits of paper mills, after the sharp rebound in pulp in late November 2021, due to the poor effect of finished paper lifting, resulting in the loss of profits of paper mills again, low-profit paper mills are expected to be difficult to improve the operating rate, you can see that the construction of tissue paper enterprises has fallen again.

(3) PPI growth in the paper industry continued to fall

From the perspective of the inventory cycle, the active replenishment of the domestic paper industry probably began after the epidemic, and it has begun passive replenishment in the first quarter of 2021, and then it has entered the active destocking stage of up to half a year, which can be verified from the output and inventory data. Into the fourth quarter of 2021, gradually began passive destocking, prices, production have stabilized, but the end demand is still weak, from the historical data of paper production and price growth, the two outside the shock period, about 7-9 months of time, so in June 2021 domestic paper production year-on-year growth declined, September negative growth, It is expected that the year-on-year growth rate of the paper industry has not bottomed out, and the year-on-year growth rate will continue to decline in the first half of 2022, while falling into negative growth, considering the base problem, the PPI growth rate of the paper industry will bottom out or around August 2022.

(4) The proportion of downstream demand for wood pulp has gradually changed

From the change in the terminal demand for pulp in the last 10 years, from 2010 to 2019, the proportion of household paper in the terminal demand for conifer pulp increased from 37% to 42%, the proportion of printing paper decreased by 10% to 27%, the proportion of household paper in the demand for broadleaf pulp increased by 6% to 43%, and the proportion of printing fell by 5% to 30%. In the coming years, this trend will continue, with the proportion of household paper in needlewood pulp demand likely to rise to 47%, printed writing paper falling to 18%, and specialty paper rising slightly. Therefore, the impact of household paper on the future demand for coniferous pulp will continue to increase, and will also affect its price, but the demand for household paper is rigid, small fluctuations, if the trend of demand changes as expected, for pulp, the impact of supply on its price will be further enhanced.