The Zhitong Finance App learned that recently the subject of price increases in the market has been frequent. Looking at specific categories, according to market statistics for the past three months, there has been a marked increase in prices for commodities such as triphthalic anhydride, difluoromethane, manganese ore, Baltic Sea Index, tin concentrate, and metallic copper, and related sectors have ushered in a “money-making effect” due to rising product prices. It is worth noting that pulp prices have rebounded for two consecutive quarters, with an increase of more than 10%. Since entering May, the price of pulp has continued to grow. The agency said that global pulp supply has been disrupted frequently since March. The mismatch between global pulp supply and demand is expected to be prominent in the second quarter. Combined, pulp inventories in the entire industry chain are at medium to low levels, and pulp prices are expected to maintain a strong trend in the second quarter. Related concept stocks: Nine Dragons Paper (02689), Liwen Paper (02314), Chenming Paper (01812).

According to data from the National Bureau of Statistics, the national paper and paper products industry achieved revenue of 336.88 billion yuan in the first quarter of this year, up 6.0% year on year; operating costs were 296.83 billion yuan, up 4.3% year on year; total profit was 10.88 billion yuan, up 137.6% year on year. The paper industry showed clear signs of recovery in the first quarter, thanks on the one hand to the recovery in consumer demand in 2024, and on the other hand, it was related to the inventory cycle. The current papermaking cycle is already in the passive storage phase, and considering that this round of inventory removal has continued for two years, the paper industry may currently be at the critical point of passive storage removal to active inventory replenishment, and the boom is expected to continue to pick up.

Looking back at 2023, the paper industry experienced high downstream inventories and weak demand, leading to a continuous decline in revenue and loss of profits for some companies. Judging from the performance perspective, Nine Dragons, Chen Ming, and Lee Man recorded another double-digit decline in 2023, and some companies experienced huge losses.

However, the price of pulp has risen this year, and the cost side is once again under pressure, but the downstream boom has picked up, and the bottom of the industry cycle may be hidden. According to the data, pulp prices have rebounded for two consecutive quarters, with a recovery of more than 10%. Since entering May, the price of pulp has continued to grow. According to statistics from the Chamber of Commerce, as of May 8, the spot price of domestic pulp was 6430 yuan/ton, up 30 yuan per ton from April 30, and up nearly 10% from the beginning of 2024. However, compared to the same period in 2023, pulp prices are still low this year.

However, industrial prices diverged, and upstream prices continued to rebound, while downstream reactions were slow. According to data from the Chamber of Commerce, during the three-month period from the beginning of February to the beginning of May this year, the white cardboard index, the waste paper index, and the corrugated paper index fell by 11.5%, 3.6%, 3.3%, and 3.6% respectively, while the broad-leaved wood pulp and softwood pulp indices increased by 14.8% and 10.3% respectively. Each link in the paper industry chain will be different in the inventory cycle, and the downstream cycle will be relatively delayed, because it is necessary to reflect not only last week's inventory but also terminal demand. Under weak terminal demand, it is difficult for upstream prices to be transmitted to terminals.

Meanwhile, on March 22, Suzano announced that the price of broadleaf pulp in the Asian market will rise by 30 US dollars/ton in April 2024, 80 US dollars/ton in the European market, and 100 US dollars/ton in the North American market. In addition, Russian needle announced that the price of coniferous pulp in the Chinese market in April was 790 US dollars/ton, and supply was halved due to pulp mill maintenance and conversion; Mercer's Canadian Moon softwood pulp price was 820 US dollars/ton in April. Since the beginning of 2024, the European and American paper industry chains have come to an end. Combined with the impact of the Red Sea incident, demand for overseas pulp has improved markedly.

On the supply side, there are currently many unplanned shutdowns in production capacity around the world (such as the strike in Finland, the explosion at the Kemi plant, and a potential strike by UPM), and the permanent withdrawal of coniferous pulp production lines and centralized maintenance of large pulp mills. Global pulp supply is expected to be tight in the second quarter, and the supply of coniferous pulp is particularly tight.

Orient Securities pointed out that starting at the end of 2023, the European and American paper industry chains are coming to an end, and demand for pulp is gradually picking up. Global pulp supply disturbances have been frequent since March. The mismatch between global pulp supply and demand is expected to be prominent in the second quarter. Combined, pulp inventories in the entire industry chain are at a medium to low level, and pulp prices are expected to maintain a strong trend in the second quarter. In terms of bulk paper, we are currently in the traditional peak season for cultural paper. If pulp prices continue to be strong, cultural paper prices are expected to achieve cost transmission, and cultural paper industry leaders, which account for a relatively high proportion of self-supply pulp, are expected to benefit from this round of rising paper prices and achieve profitable expansion.

Zhongtai Securities also stated that the core driver of this round of pulp growth is European demand restoration+low inventories+capacity maintenance. Looking ahead to the future market, the additional production capacity of Suzano and Liansheng will be put into operation in June. It is expected that the commissioning of the new production capacity will put some downward pressure on pulp prices. An inflection point in pulp prices may occur at the end of Q2. In addition, considering paper companies' pulp inventory for about 2-3 months, it is determined that Q3 costs will be relatively high, and focus on companies with strong ability to control smooth prices and costs. At the same time, due to the fact that overseas demand is better than domestic demand, combined with inflationary factors, the costs of overseas paper companies are expected to be relatively high during the year, and the impact of imported paper will be small.

Related concept stocks:

Nine Dragons Paper: UBS recently released a research report stating that it first gave Nine Dragons a “buy” rating, with a target price of HK$5.06. With coal prices lower, the company's profit margin is expected to outperform its peers next year, improving from 3% in 2023 to 9% this year and 12% next year. Additionally, shareholders' equity compensation is expected to be reduced by 5% in 2023 to 2% this year and 6% next year.

Liwen Paper: Wenli Paper has more than ten papermaking and pulping bases in China, distributed in Guangdong, Jiangsu, Chongqing, Jiangxi, Guangxi, Sichuan and other places. Up to now, the company has become a multinational enterprise with an annual production capacity of over 9 million tons, with an annual production capacity of about 7 million tons of wrapping paper, an annual production capacity of about 1 million tons of pulp, and an annual production capacity of about 1.3 million tons of sanitary paper.

Chenming Paper: The company's main business is the production and sale of machine-made paper, papermaking raw materials, paper machinery, electricity and heat. Currently, the company is equipped with chemical pulp production lines at major production bases such as Shouguang, Zhanjiang, and Huanggang, with a total wood pulp production capacity of 4.3 million tons.