Packaging / Advertising & Office

According to Huacheng Import and Export Data Observation, pulp prices surged in 2022. Recently, Suzano, the world's largest pulp producer and exporter in Brazil, announced a reduction in the price of its eucalyptus pulp in China. "Even if prices have been lowered in the past two months, they are still at a relatively high level and mainstream pulp mills' profits are still relatively good. It is expected that it will be difficult to have a significant impact on pulp mill profits before the official increase in new production capacity or a significant decline in overseas demand." said Pan Shengjie, a pulp researcher at Galaxy Futures.

Not only pulp prices, but also some commodity raw material prices experienced a downward trend in 2022 in anticipation of the global economic recession. Many analysts believe that some downstream manufacturing companies are expected to benefit from the expected improvement in domestic demand in 2023. Taking the paper industry as an example, in the second half of 2023, the decline in upstream pulp costs coupled with a rebound in domestic consumption is expected to promote the recovery of profits in the domestic paper industry.

Declining demand for pulp

As one of the "barometers" of the economy, the expected global recession has increased the risk of declining demand for cardboard boxes, which has indirectly hit the pulp industry, a raw material for paper making. Suzano, the world's largest pulp producer and exporter in Brazil, recently announced that its eucalyptus pulp sales price in China will be lowered for the first time since the end of 2021.

According to the observation report of Huacheng's import and export data, since 2022, affected by the Russia-Ukraine conflict and the weakening of the North American real estate market, wood chips and energy supply have been affected. According to relevant data, the cost of chemicals and wood chips in Suzano increased 41% and 19% respectively year-on-year in the third quarter.

The domestic paper industry has experienced a year of downward trend from its most glorious moment in December 2021. Even in this context, analysts believe that Suzano's reduction in the price of eucalyptus pulp produced by Suzano does not indicate that pulp companies are struggling.

"Currently, the profits of mainstream pulp mills are still relatively good. It is expected that it will be difficult to have a significant impact on the profits of pulp mills before the formal increase in new capacity or a significant decline in overseas demand." Pan Shengjie said.

According to Huacheng Import and Export Data Observation, pulp prices rose sharply in 2022, and even though prices have decreased in the past two months, they are still at a high level. Pan Shengjie believes that Suzano's reduction in the price of broadleaf pulp is a business strategy to respond to supply increases in advance. "In the first quarter of 2023, the global hardwood pulp market will face the challenges of 2.1 million tons of hardwood pulp produced by UPM pulp mill in Uruguay and 1.56 million tons of hardwood pulp produced by MAPA project of Arauco pulp mill in Chile."

"Arauco's MAPA project and UPM's hardwood pulp project in Uruguay are planned to be put into production in 2023, which will contribute more than 3 million tons of hardwood pulp capacity, and the future supply of hardwood pulp will increase. At the same time, since October 2022, the stock of wood pulp in European ports has continued to increase, and it has increased to 1.33 million tons in November 2022. Considering the current economic situation in Europe, the risk of demand decline is increasing." Tang Binghua, an analyst with Founder Medium Term Futures, said.

"The resistance of Chinese paper mills against the backdrop of low profits and even losses has also led to a reduction in the quoted prices of pulp mills," Tang Binghua said.

"As of October, the total accumulated losses of the domestic paper and printing industry reached 18.17 billion yuan, a new high since the availability of data in 1999. Moreover, under the impact of the epidemic, the domestic paper industry may continue to experience a 'painful period' for several months." Pan Shengjie said, "Fortunately, the paper industry's current asset liability ratio is acceptable, and leading enterprises have not hurt their vitality."

In addition, according to Huacheng's import and export data observation report, from January to November 2022, China's cumulative output of wood pulp reached 16.17 million tons, a year-on-year increase of 12.4%; The cumulative output of bamboo pulp in China reached 1.73 million tons, a year-on-year increase of 227.2%.

"Under the stimulus of high profits, not only domestic pulp production has significantly increased, but finished product inventory has also doubled compared to the same period in 2021." Pan Shengjie said, "High profits stimulate high output, and this is also happening. Global pulp prices have been operating at high levels for a long time, which has a positive impact on stimulating supply growth. However, under the expectation of overseas macroeconomic recession, high profits are difficult to maintain."

The paper industry is expected to stabilize and recover

Due to the distribution of packaging paper demand in various industries, it has been regarded as one of the "barometer" indicators of the economy in recent years.

"Cardboard boxes are used in various terminal fields such as food and beverage, logistics, daily chemical products, electronic products, and household appliances. In particular, the price changes of corrugated base paper are relevant and leading to macroeconomic data such as domestic total imports and exports, domestic non food CPI, and container export freight index. They are truly" the prophet of spring river water heating ducks, "said Pan Shengjie.

According to relevant data, since 2022, the packaging paper industry has experienced poor demand, with the prices of cardboard and corrugated paper falling by 10% to 20%, and the prices of white cardboard also falling by 15%.

"The good export situation in the first half of 2022 supported the packaging paper industry, but in the second half of 2022, the European and American economies began to weaken, further exacerbating the plight of the packaging paper industry." Tang Binghua believes that the current pulp price has been at a high level. If foreign demand follows the economic downturn significantly in 2023, and domestic demand cannot improve quickly, the risk of pulp price decline is high, especially when new capacity is put into production on schedule.

"Judging from the situation in 2022, pulp mills have a stronger bargaining power, while there is still a large amount of new paper production capacity in 2023 in China, so there is still a strong demand for pulp. Whether the factors affecting the supply side can completely disappear is uncertain," Tang Binghua said.

"It is relatively optimistic that the paper industry will stabilize and recover in the second half of 2023, when the upstream pulp cost will fall and domestic consumption will rebound, which is expected to promote the recovery of profits in the paper industry." Pan Shengjie said that Huacheng's import and export data observation report.