China Galaxy Securities: The supply and demand conflict in the pulp and paper industry continues to be pressured, and the price side continues to decline

The Zhitong Finance App learned that China Galaxy Securities released a research report saying that the current performance on the demand side of the pulp and paper industry is weak. Combined with concentrated production capacity, the conflict between supply and demand continues to be pressured, and the price side continues to decline. Following the implementation of recent centralized economic policies and further strengthening of future policies, the overall economy and terminal demand are expected to improve, and it is expected that a new upward cycle will begin at that time. At the same time, the increase in pulp prices in the first 24 months led to a month-on-month decline in corporate profits in 24Q2. The impact is expected to continue until 24Q3. The decline in pulp prices after mid-late May is expected to drive improvements on the 24Q4 reporting side.

The main views of China Galaxy Securities are as follows:

Raw materials: In terms of wood pulp, as of October 11, 2024, the daily external prices of ARAUCO coniferous pulp (silver star) and ARAUCO broadleaf pulp (star) in the main port market in China were 765 and 570 US dollars/ton, respectively, +4.79% and -1.72% year-on-year respectively, and 0% and -1.72% month-on-month respectively. On October 12, 2024, the average daily prices of coniferous pulp, broadleaf pulp, and chemical machine pulp in China were -0.72%, -15.47%, and -22.15%, respectively, and +3.25%, -0.57%, and 0% month-on-month respectively. In terms of waste paper, on October 12, 2024, the average daily price of waste yellow board paper (grade A) in China was -6.52% year-on-year and -1.28% month-on-month. In September, Southeast Asia imported 12 #再生纤维浆报盘继续下跌，市场主流报盘在280 -290 US dollars/ton of waste from the US. This is a factual discussion.

Cultural paper: On October 12, 2024, the average daily prices of double adhesive paper and double copper paper in China were -13.49% and -6.46% year-on-year, respectively, and -1.53% and -0.18% month-on-month respectively. The release of publishing orders was delayed compared to previous years. Market demand was not released incrementally as scheduled in September. Support was weak at the moment, social orders did not perform well, and overall demand was weak. At the same time, the continued decline in pulp prices has led to insufficient cost support, which has had a certain impact on the price of cultural paper. In the future, as the publishing bidding process progresses further, the number of orders required is expected to increase in stages. November may enter the delivery period for the first order, but the overall demand is expected to improve marginally.

White card paper: On October 12, 2024, the average daily price of white card paper in China was -12.68% year-on-year and -2.89% month-on-month. White cardboard production capacity was heavily invested. The average production capacity growth rate from 23 to 25 was over 10%, and competitive pressure continued to increase. Meanwhile, demand for white cardboard is strongly correlated with terminal consumer demand. Over the past 24 years, supply and demand have weakened marginally, and prosperity has continued to decline. In the short term, on the supply side, 1.2 million tons of new production capacity in South China is scheduled to be launched after the National Day, and market supply will increase; although some orders for Double Eleven, Christmas, and New Year's Day are being released one after another, the overall increase in market demand is expected to fall short of the increase in supply, and market supply and demand are conflicting or continuing to increase.

Corrugated board paper: On October 12, 2024, the average daily price of corrugated paper and box board paper in China was -12.72% and -6.51%, respectively, and +0.36% and -0.12% month-on-month respectively. Demand performance was weak during the peak season. There was a basic balance between supply and demand in the market in early September. With the end of Mid-Autumn Festival orders in mid-late September, reduced demand led to a decline in consumption, and the pressure on supply and demand gradually increased. Inventory levels are high, and there may be some pressure in the future. In September 2024, the monthly inventories of corrugated paper and box board paper in China since 2015 were 91.3% and 96.5%.

Household paper: On October 12, 2024, the average daily price of wood pulp household paper in China was -5.99%, and -0.53% month-on-month. The main factors affecting the trend of household paper prices are: 1) The market in the northern region has a good sales pace, and when paper companies are actively promoting the increase, paper prices showed an upward trend, but due to clearance demand, some regions had savings and concessions at the end of the month; 2) Dragged down by falling raw material prices, although sales in the southern market have improved, the increase in paper prices is weak, and the market focus is relatively stable.

It is recommended to focus on the targets: Pulp & Paper: Leading Sun Paper (002078.SZ), Yueyang Forest Paper (600963.SH), household paper leaders Hengan International (01044), Zhongshun Jieyou (002511.SZ), specialty paper leaders Huawang Technology (605377.SH), Xianhe Co., Ltd. (603733.SH), and Wuzhou Special Paper (). 605007.SH

Risk warning: the risk that downstream demand falls short of expectations; the risk of a sharp rise in raw material prices; the risk of increased competition in the industry.