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, announced a reduction in the selling price of its eucalyptus pulp in China. Even though prices have decreased in the past two months, they are still at a relatively high level, and mainstream pulp mills' profits are still good. It is expected that it will be difficult to have a significant impact on pulp mill profits before the official increase of 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 have experienced a downward trend in 2022 under the expectation of a global economic recession. Multiple 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 combined 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 expectation of a global recession increases the risk of a decline in demand for cardboard boxes, which indirectly impacts the paper raw materials - pulp industry. Suzano, the world's largest pulp producer and exporter, recently announced that its eucalyptus pulp prices 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, Suzano's chemical and wood chip costs increased by 41% and 19% year-on-year in the third quarter, respectively.

The domestic paper industry has gone through a year of decline from its most glorious moment in December 2021. Even in this context, analysts believe that Suzano's reduction in prices for the eucalyptus pulp it produces does not necessarily mean that pulp companies are struggling.

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

According to Huacheng Import and Export Data Observation, pulp prices have surged in 2022, and even though prices have decreased in the past two months, they are still at a relatively high level. Pan Shengjie believes that Suzano's reduction in the price of broadleaf pulp is a business strategy to respond to the increase in supply in advance. Because in the first quarter of 2023, the global broadleaf pulp market will face the challenges of 2.1 million tons of broadleaf pulp from Finland's UPM pulp mill in Uruguay and 1.56 million tons of broadleaf pulp from the Arauco pulp mill MAPA project 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 in the context of low profits or even losses has also led to a reduction in pulp mill prices, "Tang Binghua said.

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

In addition, according to Huacheng Import and Export Data Observation, from January to November 2022, China's cumulative production of wood pulp reached 16.17 million tons, a year-on-year increase of 12.4%; The cumulative production of bamboo pulp in China reached 1.73 million tons, a year-on-year increase of 227.2%.

Under the stimulation of high profits, not only has domestic pulp production 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 profit materials are difficult to maintain

The paper industry is expected to stabilize and rebound

Due to the distribution of packaging paper demand in various industries, it has been regarded as one of the "barometers" 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 home appliances. Especially, the price changes of corrugated base paper are relevant and leading to macroeconomic data such as domestic total import and export volume, domestic non food CPI, and container export freight index, making them truly the 'prophet of Chunjiang water heating ducks', "said Pan Shengjie.

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

The good export situation in the first half of 2022 has supported the packaging paper industry, but in the second half of the year, the European and American economies began to weaken, further exacerbating the difficulties of the packaging paper industry. Tang Binghua believes that pulp prices are currently at a high level. If foreign demand follows a significant decline in the economy in 2023 and domestic demand cannot improve quickly, there is a greater risk of pulp price decline, especially when new production capacity is put into operation as scheduled.

From the situation in 2022, it can be seen that pulp mills have stronger bargaining power, and at the same time, there is still a large amount of new paper production capacity in China in 2023, so pulp demand still exists. It is uncertain whether the influencing factors on the supply side can completely disappear, "Tang Binghua said.

We are optimistic that the paper industry will stabilize and rebound in the second half of 2023. By then, the decline in upstream pulp costs combined with a rebound in domestic consumption is expected to promote the recovery of profits in the paper industry, "said Pan Shengjie, observing the import and export data of Huacheng.