The Zhitong Finance App learned that Huatai Securities released a research report saying that as the paper industry gradually enters the low season, the price of pulp and paper products has generally declined recently. In terms of box board corrugated board, the price recovery before the Spring Festival was unfavorable. The relationship between supply and demand is still weak. The price of corrugated box board increased by a total of 50-100 yuan/ton in December, but this round of price restoration did not go smoothly. Furthermore, the price decline of cultural paper has accelerated since the end of 2023, and there may be concerns about market competition after 2025 for white cardboard. However, the bank believes that the current steady growth in demand is stable. As strong supply growth from 2022 to 2023 is gradually being digested, and new production capacity is generally reduced in 2024, the industry is gradually getting closer to the inflection point of the balance between supply and demand.

Huatai Securities's views are as follows:

Domestic and foreign demand is growing steadily, and the paper industry is rebalancing or getting closer

Economic data for December showed that both domestic and external demand continued to grow steadily. Total retail sales of consumer goods were +7.4% year-on-year (November: +10.1%). After deducting the low base factor at the end of 2022, the two-year average growth rate for the month was +2.7% (November: +1.8%). The growth in automobile and food consumption is still strong. The two-year average growth rate in December reached +7.9% and +5.7%, respectively, while consumption in other categories also improved (average growth rate of +0.8% in December and +0.0% in November). The export value in December was +2.3% year-on-year, further accelerating compared to November (+0.5%). As the paper industry gradually enters the low season, the price of pulp and paper products has generally declined recently. However, the bank believes that the current steady growth in demand is stable. As strong supply growth from 2022 to 2023 is gradually being digested, and new production capacity is generally reduced in 2024, the industry is gradually getting closer to the inflection point of the balance between supply and demand.

Box board corrugated board: The price recovery before the Spring Festival was unfavorable. The relationship between supply and demand is still weak. The price of corrugated box board increased by a total of 50-100 yuan/ton in December, but this round of price restoration did not go well.

Leading companies gave rebates during the New Year's Day holiday and continued to implement them thereafter, leading to a decline in overall market prices since 2024. The price recovery during the peak stocking season before the Spring Festival was unfavorable, reflecting the fact that the supply and demand relationship in the industry is still weak. The CIF price of imported kraft paper continued to rise slightly in December. The price advantage over domestic kraft paper is already at its lowest level since the beginning of 2023, and the growth of imported finished paper is expected to slow down. Although the current relationship between supply and demand is still weak, as supply expansion decelerates, the bank anticipates that it will no longer be so difficult to achieve a rebalancing of supply and demand in the industry.

White cardboard: market competition may have hidden concerns after 2025

Since late December, the price of white cardboard has changed from rising to falling. As of January 17, the price was 84 yuan/ton (1.6%) lower than at the end of 2023. Thanks to more active downstream inventory replenishment, the average inventory of manufacturing companies has dropped to 18 days (24 days in the same period in 2023). The bank expects demand for white cardboard to maintain strong growth, driven by the “paper instead of plastic” and “white to gray” trends. With supply growth declining in 2024, the contradiction between supply and demand for white cardboard is expected to ease in stages. However, in the medium to long term, investment enthusiasm is still high in the white cardboard sector. Since December, two projects of more than 1 million tons/year, Jiangsu Asia Pacific Sembo Phase II and Hainan Jinhai have announced early progress. If the follow-up progresses smoothly, a large project of 6 million tons of white cardboard may be put into operation in 2024-2025, and the competitive environment in the market may still be quite intense after 25 years.

Cultural paper: The price decline has accelerated since the end of 2023

Since the end of 2023, the price of cultural paper has been falling rapidly. As of January 17, the price of double adhesive paper dropped 265 yuan/ton (4.4%) from the end of 2023, making it the biggest drop for all major types of paper since the beginning of middle age. The manufacturer's inventory also rose to 24.4 days (25.0 days in the same period in 2023), which is the highest in the same period in history. Due to concentrated production capacity investment in late 2023 and early 2024, inventory replenishment from downstream users in 2023, and concentrated demand release brought about by the resumption of travel may be difficult to replicate in 2024, cultural paper may be the main type of paper with the most serious 1H24 challenges.

Wood pulp: external strength and internal weakness continue, potential supply disturbances are worth paying attention to

Since December, domestic spot pulp prices have declined further, external market prices have generally stabilized, and commercial pulp has continued the trend of external strength and internal weakness. As of January 17, the domestic spot prices of broadleaf and coniferous pulp were 160 yuan/ton and 179 yuan/ton lower than the external market, respectively. Due to the tight shipping market due to the Red Sea waterway detour, the bank expects that shipments of imported wood pulp may gradually be further affected. Considering the impact of the transportation cycle, supply disturbances in the domestic pulp market will be reflected in the coming months, thus changing the current situation where pulp prices are strong and weak. In the medium term, domestic and foreign pulp production capacity investment is high in 2024, and the downward trend in pulp prices is likely to continue.

Risk warning: Overseas economies are slowing faster than expected, real estate policies are stricter than expected, and supply investment is stronger than expected.